Annual Report 2008 - Capitec Bank · 1 Key Performance Indicators and Company Structure ... Annual Report 2008. Highlights ... Net loans and advances Rm 2 019 803 151% 455 208

Highlights

Contents

1 Key Performance Indicators

and Company Structure

2 The Market

6 Letter to Shareholders

10 Chief Financial Officer’s Report

16 Directorate and Executive

18 Management Committee

20 Corporate Governance

and Risk Management Review

35 Annexure A

Attendance of Meetings by Directors

36 Annexure B

Composition of Board and Board Committees

38 Sustainability Review

49 Annual Financial Statements 2008

101 Statutory Information

102 Special Resolutions of Subsidiaries

103 Notice of Annual General Meeting

110 Form of Proxy

111 Notes to the Form of Proxy

112 Shareholders’ Calendar

112 Administration and Addresses

Headline earnings 32%

Final dividend per share 75 cents

Return on equity 22%

Clients 1.37 million

Shareholders’ funds R1.2 billion

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C a p i t e c B a n k H o l d i n g s L i m i t e d

Annual Report 2008

Highlights

Contents



2 The Market







35 Annexure A


36 Annexure B







110 Form of Proxy









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Annual Report 2008

Free State

Northern Cape

KwaZulu-Natal

Key Performance Indicators

Change08/07

-NatalKwaZulu-N5533Free State

Northhern Cape

National Network

331 BranchesLimpopo

Mpumalanga

33666666

2233Gauteng

79

1199North West

46Western Cape

Eastern Cape

In six years Capitec Bank’s low-cost banking model

has attracted 1.4 million clients, through 331 branches,

and created over 2 800 job opportunities.

Company Structure

Board and senior management excluding

black directors23.31% Various

shareholders 25.8%PSG

Group 34.9% sBEE 15.99%

Capitec Bank Holdings Limited 1999/025903/06(Listed and registered as a bank controlling company)

100% Capitec Bank

Limited1980/003695/06

75% Key Distributors

(Pty) Ltd

100% Other

Subsidiaries2001/000964/07 No activity

Capitec BankGroup Employee

Empowerment TrustIT 4069 /2007

Capitec Bank Holdings Share

TrustIT 3044 /2000 Share

Incentive Trust

C a p i t e c B a n k H o l d i n g s L i m i t e d1

2008 2007 2006 2005 Operations

Profi tability

Income from operations Rm 1 095 857 28% 672 491

Operating expenses Rm (771) (614) 26% (506) (392)

Tax Rm (95) (76) 25% (51) (32)

Preference dividend Rm (17) (8) 123% - -

Earnings attributable to ordinary

shareholders

• Basic Rm 212 159 33% 115 67

• Headline Rm 212 160 32% 116 70

Cost-to-income ratio – banking activities % 58 60 (3%) 66 74

Return on ordinary shareholders’ equity % 22 26 (17%) 23 16

Earnings per share

• Attributable Cents 258.8 220.9 17% 163.4 97.9

• Headline Cents 259.0 222.4 16% 165.0 100.9

• Diluted attributable Cents 250.3 209.5 20% 154.7 91.7

• Diluted headline Cents 250.5 210.9 19% 156.2 94.5

Dividends per share

• Interim Cents 25.0 20.0 25% - -

• Proposed fi nal Cents 75.0 60.0 25% 45.0 30.0

Dividend cover x 2.6 2.8 (7%) 3.7 3.4

AssetsTotal assets Rm 2 936 2 191 34% 1 251 805

Net loans and advances Rm 2 019 803 151% 455 208

Cash and cash equivalents Rm 618 1 044 (41%) 582 363

Investments Rm 14 112 (87%) 7 17

Other Rm 285 232 23% 207 217

LiabilitiesTotal liabilities Rm 1 719 1 074 60% 687 332

Deposits Rm 1 528 897 71% 595 281

Other Rm 191 177 7% 92 51

EquityShareholders’ funds Rm 1 217 1 117 9% 564 473

Capital adequacy ratio % 36 79 (54%) 56 84

Net asset value per ordinary share Cents 1 297 1 175 10% 784 672

Share price Cents 3 900 3 700 5% 3 105 1 490

Market capitalisation Rm 3 195 3 031 5% 2 233 1 072

Share options

• Number outstanding ’000 5 159 6 191 (17%) 5 841 6 753

• Average strike price Cents 1 815 1 151 58% 648 271

• Average time to maturity Months 24 24 – 28 25

• Charge on settlement Rm 48 22 118% 31 16

OperationsBranches 331 280 18% 253 251

Employees 2 800 2 129 32% 1 901 1 708

Active clients ’000 1 371 1 010 36% 706 513

Own ATMs 328 264 24% 210 180

Partnership ATMs 437 143 206% - -

Mobile banking units 86 53 62% - -

Capital expenditure Rm 117 86 36% 72 84

SalesLoans

• Value of loans advanced Rm 5 162 3 449 50% 2 863 2 259

• Number of loans advanced ’000 3 155 2 924 8% 2 650 2 486

• Average loan amount R 1 636 1 180 39% 1 080 909

• Loan revenue Rm 1 284 1 001 28% 768 534

• Net loan impairment expense Rm 231 161 43% 96 39

• Net impairment to repayments % 5.10 4.12 24% 2.85 1.45

Deposits

• Value of savings deposits Rm 842 554 52% 314 74

• Number of savings clients ’000 783 583 34% 375 143

• Net transaction fee Income Rm 79 35 128% 15 4

Free State

Northern Cape

KwaZulu-Natal


Change08/07


Northhern Cape

National Network

331 BranchesLimpopo

Mpumalanga

33666666

2233Gauteng

79

1199North West

46Western Cape

Eastern Cape




Company Structure




Group 34.9% sBEE 15.99%


100% Capitec Bank

Limited1980/003695/06


(Pty) Ltd

100% Other






Incentive Trust


2008 2007 2006 2005 Operations

Profi tability



Tax Rm (95) (76) 25% (51) (32)



shareholders

• Basic Rm 212 159 33% 115 67

• Headline Rm 212 160 32% 116 70



Earnings per share


• Headline Cents 259.0 222.4 16% 165.0 100.9



Dividends per share

• Interim Cents 25.0 20.0 25% - -


Dividend cover x 2.6 2.8 (7%) 3.7 3.4





Other Rm 285 232 23% 207 217


Deposits Rm 1 528 897 71% 595 281

Other Rm 191 177 7% 92 51






Share options






Employees 2 800 2 129 32% 1 901 1 708

Active clients ’000 1 371 1 010 36% 706 513

Own ATMs 328 264 24% 210 180




SalesLoans




• Loan revenue Rm 1 284 1 001 28% 768 534



Deposits





“Since Capitec’s arrival on the banking scene there has been

a shift in the mind set of conservative banks as they have

woken up to the potential in the emerging segment.”

Richard Stovin-Bradford

7 November 2007

An Innovative Alternative to Traditional Banking


The Market

The need for simplifi ed, accessible and low-cost banking is evident

across all income sectors in the market. The level of personal saving in the market is alarmingly low,

but understandable, as returns on everyday savings are poor. The average client incurs fees and costs

that exceed the savings returns in an account on an annual basis. Transaction costs are high, fi nance is

generally inaccessible and processes are cumbersome, with long delays before a response or approval is

given. Capitec Bank has tailormade its Global One Banking Facility to address all these shortcomings.

Capitec Bank has redefi ned the way retail banking is accessed in South Africa and has challenged

the conventional way of delivering value to clients. The innovative banking platform has enabled the

Bank to engage the market where other banks were reluctant to venture.

The wayto bank

C a p i t e c B a n k H o l d i n g s L i m i t e d 3

T h e M a r k e t

Value

The all-in-one Global One Banking Facility is the most

affordable day-to-day transaction account available. It is

also the most attractive and fl exible savings package of its kind

in the market with the highest interest return for the everyday

saver. Furthermore, this facility provides access to a very price

competitive range of credit products with the added advantage of

immediate availability of funds.

Transacting value is unbeatable, as purchases with the Global One

Gold Card incur no fees and cash withdrawals at selected retailers

can be done for only R1 per transaction. Access to the easiest

online banking completes this substantial package! Despite

competition in the market, the Global One offer enjoys phenomenal

success, with client numbers now in excess of 1.3 million.

Convenience and simplicity

Capitec Bank’s unique offer is communicated in such a way

that everyone clearly understands what is being delivered and

how much they are paying for it. Added to this is the paperless

application process for transacting, savings or lending options,

making our offer the most simplifi ed and accessible in the

market. This Global One Banking Facility gives clients access

to a range of products that fulfi l their essential banking needs and

which are all managed via a single card.

The application process for savings accounts and personal

loans is effortless, taking just minutes to complete. Where credit

applications are concerned, the credit-granting process complies

with the National Credit Act and gives approval of applications in

minutes.

Convenience has been further enhanced with minimum

banking hours that are from 08:00 to 17:00 on weekdays and

08:00 to 13:00 on Saturdays. Our 331 branches are often open

from 07:00 to 19:00 on peak days to accommodate clients

commuting to or from work.

Agreements have been established with major retailers to give

clients access to the banking system. Purchases and cash

withdrawals can be done at any till point at Shoprite, Checkers

and Pick n Pay. The Maestro- and Visa- endorsed Global One

debit card facilitates local and international card purchases at most

retailers. Capitec Bank is also part of the Saswitch network, so

clients can access not only our 765 ATMs, but all other banks’

ATMs nationwide for cash withdrawals and transacting.

Security

Client account security is key at Capitec Bank and advanced

technology is used to prevent unauthorised or illegal access. All

transactions performed by branch consultants are controlled via

biometric authorisation. This enables paperless tracking when

account enquiries arise, facilitating speedy resolution. Further

enhancements to security are being implemented via biometric

verifi cation of clients.

In addition to biometric verifi cation, photo ID is used to facilitate

instant client recognition. A digital photograph of the client is

captured during the opening of the Global One Banking Facility.

Whenever clients visit a branch, they swipe their Global One

Gold Card before being prompted to enter their unique PIN. The

system recalls the client’s photograph, allowing the consultant

to identify the client in person.

ATMs and drop safes ensure that Capitec Bank’s branches are

largely cashless, which provides a safer and more accessible

environment to clients, with reduced risk of robberies.

The retail internet banking service offered by Capitec Bank from

January 2008 uses a unique security token which generates a

once-off code each time a registered user does a transaction. This

is in addition to normal user identity verifi cation and passwords.

Security tokens are issued during the registration process and

linked to a client’s account.

Personal service

Capitec Bank consultants are employed for potential and trained

for skill. This ensures consistent quality at the service interface.

They are specifi cally selected from local communities where the

branch is situated, to afford clients the opportunity of being served

in the language of their choice. Branches are situated where

clients shop, commute and work. The branch design promotes an

open and friendly atmosphere with a focus on personal support

and service.

Since inception, the Bank has had a client-centric business approach which delivers the following:

value, convenience, simplicity, security and personal service.

T h e M a r k e t


Our consulting processes are directed at empowering clients to

make the right choices given their individual needs.

Capitec Bank has a dedicated 24-hour client care centre which

gives clients assistance when they need it. Capitec Bank also

encourages personal development by promoting a basic fi nancial

skills programme made accessible to interested parties.

Innovation

Capitec Bank invested in world-class systems and innovative

technology to provide unique products and services to the

market. While this has delivered accessibility, simplicity and good

value for money to clients, it has also enabled a streamlined,

low-cost service platform which drives high volume effi ciency.

Our system-driven service model which uses biometrics, photo

verifi cation and card access, means diverse skill levels are not

required throughout the entire branch network. No costly back-

offi ce functions are required in branches and the innovative

system design ensures that the minimum resources are used

for the centralised control and support functions. In-branch

processes are continuously being improved to simplify client

fl ow and reduce administrative demands. Further enhancements

are being designed and will be applied in 2008/9 to improve

effi ciency and increase capacity.

Mobile banking is another innovation from Capitec Bank. This

takes banking to the market and gives clients the opportunity

to open a Capitec Bank account, do transactions or activate

savings facilities from their place of work.

The South African market - 2007The South African market 2007

• 19 million banked adults

• 13 million unbanked adults

• 18 million active credit clients

• R32 billion was extended in credit in

the microfi nance sector of the market for

the year ended May 2007*

• 42 % of salary/wage received by

individuals was in cash

*Small loans and retail credit

Source: Finmark

Banked vs Unbanked

60.3% Currently banked

9.6% Previously banked

30.1% Never banked

Income received via

cash or account

58% Salary/wage received into bank account

42% Salary/wage received in cash


“I became a client of Capitec Bank in February 2006 and since then

my life has never been the same. The attention you get from the bank staff,

the support, the approvals of loans or savings; it’s never been this easy.”

Sonia Mathe

Capitec Bank Client

780 000 savings clients trust us with their money


Letter to Shareholders

A small failure or a big success

When we started Capitec Bank seven years ago, I predicted

that Capitec would be either a small failure or a big success.

Had we failed, we would probably have done so soon and

disappeared in a puff of smoke, only to be remembered by

ourselves. If we succeeded, we would change the way banking

is done forever and not only in South Africa. At this stage we are

too substantial to be a small failure – not that we ever had the

inclination to go this route – with 331 branches, 2 800 employees

and a market capitalisation of R3 billion. Do we rate ourselves

as a success? Surely yes, with a profi t of more than R200 million

and the fact that we have established South Africa’s fi rst new

retail bank in a generation. Yet we hardly feel satisfi ed, so much

remains to be done.

Profi t - R212 million

The R212 million headline profi t we can report to our shareholders

represents a growth of 32% on last year, but growth per share of

only 16% if we bear in mind that we issued 10 million new shares

at R300 million to our BEE partners at the end of our last fi nancial

year. This latter percentage is the most modest growth in profi ts

since Capitec Bank’s inception. Our expenses grew by 26% as we

invested heavily in branch expansion, system development and

staff training. We regard the profi t growth as satisfactory for one

reason: the National Credit Act.

This piece of legislation came into force in mid 2007. We

support its main impact on credit-granting: to base credit on the

ability of a borrower to repay. We have never considered assets

when making credit decisions and only look at ability to repay. We

do, however, decry some of the consequences of the Credit Act.

We believe in transparency when dealing with our customers

and our fees are always easy to understand. The interest we

charged our customers used to be a high, but an all inclusive

number. The new Act obliges us to charge a complicated fee,

consisting of an initiation fee, a monthly administration fee and

interest. (Our fi nancial statements term these fees “loan fee

income” to distinguish them from conventional transaction

fees.) What’s more, the fees are subject to value added tax.

A structure designed to protect the consumer has cost us

R65 million in additional tax.

The most pernicious effect of the legislation is the introduction of

prescribed maximum interest rates and fees. At Capitec Bank

we have followed a consistent approach to the high interest rates

which used to be the norm in our industry: every year our rates were

lower than in the previous year. This has resulted in growth in both

the size of loans and the number of loans, the support of higher-

income customers who are more credit-worthy and overall

lower default rates. At the same time we have had to balance a

reduction in rates carefully with our cost structure, the investment

needed to grow and the profi t expectations of the market. The

Credit Act disrupted our measured approach and forced us to drop

our rates faster than we would have done, apart from diverting

time and investment to comply with an overly bureaucratic way of

doing business. These are the circumstances which lead us to be

satisfi ed with a fairly pedestrian profi t performance.

Our larger capital base means that our return on capital

dropped during the current year from 26% to 22%. This is a

temporary effect that will be nullifi ed as our business grows. This

time last year, we felt that the additional capital of R300 million

we raised was in excess of our needs but we did the transaction

to increase our BEE shareholding. We are now glad that we did.

Our three-year loans have grown signifi cantly and our total loan

book amounts to R2.1 billion (151% more than last year’s R803

million). The American subprime crisis has resulted in a tightening

of funding markets in South Africa, making a strong capital base

a big asset.

As reported last year, our employee empowerment trust is a 5%

participant in the BEE deal, amounting to 500 000 Capitec shares.

These shares have been allocated to all our staff (excluding only

those participating in our share option scheme) so that each staff

member will, over the next fi ve years, receive the growth in value

of 200 shares less the funding cost of the shares.

“Is it a bird? Is it a plane? No, it’s CAPITEC BANK!”

Suddenly Capitec Bank is everywhere. During the past year we launched our fi rst large advertising campaign and

our name is now recognised in our target market as much as the weakest of the four traditional banks (This may not be

a huge achievement, but it is a decent beginning). We have 331 branches, one in every corner of our country, 51 more than

last year. Our Internet banking is available to customers in the Eastern and Western Cape and will soon be available

everywhere. This is not an invisible service. It will be much talked about because it will bring the real benefi ts of internet

banking to all South Africans for the fi rst time. It will stress that we are building a ubiquitous bank, providing all basic banking

services, including those required by the young and modern. We have over 1.3 million customers, 36% more than last year.


L e t t e r t o S h a r e h o l d e r s

7

Moody’s national credit rating

During the year Moody’s Investor Services upgraded the long-

term national scale credit rating of Capitec Bank Limited,

Capitec’s banking subsidiary, by two notches to A2.za. The short-

term rating at Prime-2.za remains unchanged.

Instant gratifi cation

The customer walks into a shop, buys a can of beans, and

walks out. What’s the big deal? This is exactly what we do:

the customer walks into Capitec Bank, applies for a loan, and

walks out with the money. If it’s a new customer, we have to

open an account for the customer’s, issue a card and make the

loan accessible via the card. What’s the big deal? The big deal is

that no private bank in South Africa can do this, not even for a

client of thirty years’ standing.

At traditional banks, a client request results in the opening of a

fi le (in modern banks, it is an electronic fi le) which will wind its

way through various departments and committees, before the

bank will respond to the client. We regard the customer’s request

as an opportunity to complete the transaction. If we need credit

bureau information, that information is immediately retrieved

electronically. If we need to verify information, that verifi cation

is done immediately. Here is an example: when a customer

opens an account, an electronic photo of her is saved on her fi le.

When a lost card needs to be replaced, one of the checks is that

we confi rm from a photo on the system that the applicant is the

same person as the one to whom the card was originally issued.

This is not only what the customer wants, it is also a very effi cient

way of doing business. Every fi le with unfi nished business

represents an impediment to the fl ow of new business. (Can you

imagine if Home Affairs had the same approach to issuing an ID

document or passport?)

We can offer this level of service only if all our processes

have been carefully planned: do it well, or don’t do it at all. Our

front-line staff need to be well trained. Every action is performed

on the system in real time.

Banking is about detail

Broad strategic approaches to banking are of limited value.

Everybody knows that the consumer wants more action and

less paperwork. To achieve it requires no unique strategy, but the

focus on detail.

No staff member may deal with the public before graduating from

our Firm Foundations programme. All new staff members have

to pass this intensive two-week course, which is offered in

Stellenbosch. In the past fi nancial year we spent R19.2 million on

staff training. Our total investment in staff training amounted to

a massive 9% of our total operations salary bill (yet we remain

subject to a special “training tax” in the form of a SETA levy of

R3.2 million, less a refund of R1.3 million.)

The same meticulous attention to detail that is found in staff

training and systems design is also present in our branch

network. The lay-out of our branches, the size of the branches

and the location of every branch are the result of careful

planning. When we started the bank, sites were readily available

in the market. We were proud of the fact that in most areas our

branches were modern and stood out in comparison to other

shops in the vicinity. In seven years the business environment,

in the poorer areas in South Africa’s townships and rural areas,

was transformed beyond recognition. A huge investment has

gone into glamorous shopping malls, as well as into strip malls

and individual shops. Upgrading these business centres has

signifi cantly improved the quality of life of local residents.

Last year we planned to open 65 new bank branches. In fact, we

only opened 54 and closed 3. We have simply not been able to

fi nd the sites we require at reasonable rates. We have slightly

moderated our ambitions and plan to open 31 new branches in

the coming year.

We have 5 branches in Soweto, 13 in downtown Johannesburg but

none in Sandton. This illustrates our focus on the market for basic

banking, but as we grow we need to cover all parts of the country,

not only MtubaTuba and Kwaggasrant, but also Sandton.

Capitec Bank is the most technologically advanced bank in

South Africa and maybe the world. We cannot operate without

a modern infrastructure, including telecommunications and

electricity. We have generators to provide electricity to our call

centre, campus and mainframe computers. We cannot provide

electricity to all our branches.

The Capitec revolution

We dream of the day when Capitec Bank will provide banking

to all South Africans who need basic banking products. Doing

banking the Capitec way should be as painless as buying

bread or a Coke*. A cold cool drink or a fresh loaf of bread

in every remote shop in South Africa is the visible tip of an

impressive production and distribution system. Capitec Bank

needs a production machine (it’s pretty much there), a brand

(we have started advertising, but everything we do is meant to

inspire confi dence in Capitec Bank), thousands of access points

(we have hundreds) and millions of customers. (“Clients” are

served by people with ties in offi ce blocks; “customers” make a

quick and easy transaction wherever it suits them.)

*Registered trademark. We respect trademarks.

Our fees are low and easy to understand. The traditional

L e t t e r t o S h a r e h o l d e r s


range of loan products, from one month to three years. Longer

term loans tend to be bigger, with lower administration costs and

we charge lower interest rates on these loans. The default ratio

is lower on a per month basis, but higher over the life of longer

term loans.

With the introduction of a three-year loan in October 2007, we

compete across the spectrum of loans on offer to our customers.

We have exceptional skills in managing risk and ensuring

repayments from our customers.

The board of directors

Jannie Mouton has been our chairman since Capitec Bank

was founded in 2001. Jannie was an early and staunch supporter

of the Capitec Bank revolution. Without his support and the support

of the PSG Group (of which he is the founder and chairman and

which remains our largest shareholder), Capitec Bank would

never have come into being. A year ago I took over as chairman

from Jannie. Since then Jannie has also retired as a director of

Capitec Bank.

At the same time Jacobus van Zyl Smit retired as a director. He

was chairman of our audit committee and also a constant source

of advice based on experience and knowledge.

We thank Jacobus and Jannie for their loyalty and wisdom.

During the year four new members were appointed to our board:

Tshepo Mahloele (CEO of Pan African Infrastructure Development

Fund and deputy chairman of Circle Capital Ventures), Piet Mouton

(managing director of Thembeka Capital), Pieter van der Merwe

(after his retirement as executive director of Absa responsible for

Group Administration, IT, Information Management, Credit and

Risk) and Kevin Hedderwick (Chief Operating Offi cer of Famous

Brands, well-known for its Steers and Wimpy restaurants). They

bring a wide range of experience with them.

It is important that the board be revitalised from time to time. The

board of directors oversees the management of the bank. It is the

management of the bank who are responsible for the amazing

story of Capitec Bank that I report on and we remain in awe of

what Riaan Stassen and his team have achieved.

The future

We see great opportunity in the expansion of our product range,

our branch network and our transaction platform in the coming year.

Capitec Bank will continue to revolutionise banking in South Africa.

Michiel Le Roux

Chairman

banks have complicated fees. Our fees are generally 50%

lower than the traditional banks. A typical Internet banking

service at a traditional bank carries a fi xed monthly cost of

R19.95. Some payment fees are as high as R3 plus 60c per

R100 with a maximum of R12.50. Our new Internet banking

service charges no monthly fee and R1.75 for a payment,

irrespective of value.

We look carefully at what our customers require. The fi rst

transaction many of our customers do, is to check the balances

on their accounts. We offer it free, on the fi rst screen that opens

on our ATMs.

Much has been said about high banking fees in South Africa.

At Capitec Bank we admire the four traditional banks that

dominate our banking scene. They manage a complicated,

universal banking model extremely well. In the same queue

at their branches you fi nd a rich businessman, a poor salary

earner and a housewife. We focus on a single slice of the South

African community and tailor our offering to meet her or his exact

needs. This both allows us and requires us to charge lower fees.

Needless to say, we do not believe in government intervention

to reduce fees which are the result of free, competitive forces.

We believe in competition. We believe in the revolution. La lutta

continua!

Two million customers

When we started we believed we needed two million

customers to be a success. Many of the targets we set

ourselves seem modest by the time we attain them. We could

reach the target of two million active customers during the

coming year, but we are now striving towards fi ve million.

In a good month we open 40 000 new accounts. At the same

time thousands of customers stop using their accounts (nobody

ever closes an account). We have over 520 000 loan customers

who took a loan during the last six months and 851 000 salary

deposit and savings customers, a total of over 1.3 million

customers. Our lending business is impressive: we granted a

total of 3.2 million individual loans during the year, with a total

value of R5.2 billion (a 50% growth over last year). At peak

times, we process 3 000 loans per hour. On average, it takes 10

minutes to approve a loan application for an existing customer.

Remember, Capitec Bank never requires any customer to fi ll

in a form. Every transaction is done by a consultant, directly on

the system. The customer must sign a printed copy of the loan

agreement and receives a copy for his own use. Every transaction

is confi rmed by our consultant by means of a fi ngerprint reader.

This creates a permanent audit trial.

We started by buying 300 cash loan stores with a single product:

a thirty-day cash loan at 30% interest per month. We now offer a


Sunday Times Top 100 Companies Award Capitec ranked 3rd for investment

performance over f ive years

“Don’t expect Capitec to be anywhere other

than one step ahead of its competitors.”

C a p i t e c B a n k H o l d i n g s L i m i t e d1 0

Chief Financial

Offi cer’s Report

Infrastructure development

The Capitec Bank business strategy is aimed at ensuring

sustainable long term revenue and profi t growth and therefore

focuses heavily on infrastructure development. During the year

the following progress was made:

• 54 branches were opened, while two smaller branches were

closed and a third branch temporarily closed, bringing the total

to 331. The performance of the new branches is satisfactory

• The average number of frontline staff per branch increased

from 5.6 to 6.4

• The total number of ATMs was increased to 765, of which

437 are third party ATMs. This means that clients’ access to

cash outside business hours and without the higher cost of

SASWITCH ATMs has been extended, in addition to the access

already available through retailers at point of sale

• A further 33 mobile bank units were implemented, bringing

the total to 86 and increasing support for our sales team by

helping primarily the account opening process

• The 36 month loan product was introduced, including

changes to vetting, scoring and affordability computations

required to ensure that the product will be profi table

• Point of sale debit and credit card acquiring was launched

• Internet banking has been launched in two provinces and roll

out across the rest of the country is in progress

• E-learning was introduced to distribute technical training to

branch staff throughout the country. This also enables us to

centrally monitor progress of each staff member and identify

trends where processes and procedures require further

training.

In addition to the above, the requirements of the National Credit

Act (NCA) were successfully implemented during the year. Our

level of preparedness made an important contribution to sales

growth, while other market participants struggled to come to terms

with the requirements and implications of the Act.

Loan bookboo

Value of loans advanced by product2 000

1 500

1 000

500

0

1 month 3 month 6 month 12 month 18 month 24 month 36 month Total

2007 1 600 687 392 425 190 155 - 3 449

2008 1 692 757 314 797 430 774 398 5 162

R’m


C h i e f F i n a n c i a l O f f i c e r ’ s R e p o r t

The NCA replaced the exemption to the Usury Act under which

Capitec previously operated. We continuously refi ne our credit

vetting, scoring, affordability and instalment recovery processes.

This enabled us to launch longer term products such as our

36 month loan product in October 2007.

We believe that the traditional model of asset based fi nance offers

little real protection to lenders in the market where we operate.

We therefore focus on behaviour, affordability and good

administration. Furthermore, we fi x our interest rates over the

term of the loans to reduce the interest rate exposure of our

clients. We match this with fi xed rate funding of at least similar

duration.

The growth in long term products led to an increase in the net loan

book of 151% over last year. The revenue from the new products is

deferred over the term of the products and therefore does not have

an immediate impact on the revenue for the current year. The impact

of the 12, 18 and 24 month products that were in place throughout

the year was more signifi cant to overall revenue growth.

Loan revenue by productLoan revenue by productLoan revenue by product

300

250

200

150

100

50

0

1 month 3 month 6 month 12 month 18 month 24 month 36 month other Total

2007 285 232 209 220 31 22 - 2 1 001

2008 259 211 113 296 169 213 39 4 1 284

R’m

Loan book by product

1 month 3 month 6 month 12 month 18 month 24 month 36 month other Total

2007 Gross 108 103 91 270 176 150 - 16 914

2007 Net 98 92 72 231 165 144 - 1 803

2008 Gross 118 138 104 449 314 660 384 25 2 192

2008 Net 109 121 89 408 292 622 370 8 2 019

700

600

500

400

300

200

100

0

R’m



Loan revenue by productLoan revenue by productBad and doubtful debts by product before recoveries

80

70

60

50

40

30

20

10

0

1 month 3 month 6 month 12 month 18 month 24 month 36 month Total

2007 29.5 28.5 40.3 68.3 10.9 6.2 - 183.7

2008 18.7 32.7 18.7 76.2 46.8 58.2 14.1 265.4

Pricing

We introduced a new loan price structure during the 2007 fi nancial

year, comprising an initiation fee, a monthly administration fee and

interest. The current year interest income is therefore signifi cantly

lower than last year, with a related increase in loan fee income.

The new price structure was implemented from October 2006 to

May 2007. The NCA structure would have allowed us to increase

the prices of smaller loans, whereas the pricing on larger and

longer term products generally would have reached the ceiling.

We chose not to increase rates on the shorter term products

and to price all products competitively relative to the ceilings.

The loss in revenue was countered through increased volumes,

combined with the roll out of new products.

This was successfully achieved, as can be seen from the growth

in the loan book and loan revenue for the year. The lower yield on

the book, countered by larger outstanding balances, contributed

to moderate profi t growth, but places us in a strong growth

position for the future.

The fee based loan pricing led to VAT leakage of R64.7 million

for the year, due to the fact that VAT is levied on fee income.

We chose to absorb this impact rather than pass the cost on to

clients.

Bad and doubtful debts

The gross bad and doubtful debt expense (before recoveries) for

the year is shown below:

The loan impairment expense in relation to loan revenue is higher

on longer term products. The long term products, however, utilise

the infrastructure of the bank more effi ciently, as clients need not

go through the application, vetting and affordability processes as

frequently. This can be seen from the improvement in the cost

to income ratio from 60% to 58% for the year.

Credit scoring and affordability measures are continuously being

refi ned to limit delinquency on loans. We are cautious in granting

longer term loans as the economy slows down. Credit granting

criteria are reviewed on a weekly basis to ensure that the latest

information is taken into account.

Our loan impairment expense as a percentage of instalments due

by product compared as follows against last year:

We measure arrears and impairments against instalments due and

not outstanding balances because a large part of our short-term

loans are repaid before month end and are therefore not refl ected

on our balance sheet at month end or year end.

All loans are written off 90 days after a loan goes into arrears. For

short-term loans the write offs refl ect a current reality, but need to

be carefully interpreted as an impairment of 1,05% on a one month

by product compared as follows against last year:

%

irments against instalmen

1 Month 1.05 1.61

3 Month 3.83 3.16

6 Month 5.14 6.85

12 Month 10.18 13.13

18 Month 12.99 24.30

24 Month 15.78 21.65

36 Month 29.37 -

Gross bad debt 5.86 4.69

Recoveries (0.76) (0.57)

Net bad debt 5.10 4.12

2008 2007

R’m

C a p i t e c B a n k H o l d i n g s L i m i t e d 1 3


loan means that we expect to write off 12 times that percentage

over a 12 month period.

Longer term loans are more complex and provisioning against

these loans contains less certainty. The impact of a missed

instalment is more severe at the beginning of a loan, as the full loan

amount may be at risk. Therefore the provision as a percentage

of instalments is higher for a new and growing loan book. Over

time every new product reverts to a normal distribution of arrears.

This is why the impairment expense of 18 and 24 month loans

has improved signifi cantly and why the new 36 month loans

start with a high level of impairment. We expect the 36 month

fi gure to reduce signifi cantly towards maturity.

We consider the current provisions to be adequate, given our

clients’ payment history and the current economic environment.

The breakdown of the loan book between current loans, loans in

arrears and estimated incurred but not reported arrears, as well

as the movement in the loan provision account is set out in Note 6

to the fi nancial statements.

Income recognition

International Financial Reporting Standards require that revenue

from services rendered should be recognised based on the

stage of completion of the services. Revenue from the creation of

fi nancial assets such as loans and advances should be recognised

based on the yield to maturity basis over the term of the loan.

Capitec Bank offers transacting and savings services in addition

to loan products. The pricing of loan products includes recovery

of some of the transacting services. Loan fee income is therefore

partially refl ected in the month that the transacting services are

rendered and the remainder refl ected over the term of the loan,

taking into account the relative activity levels and costs related to the

respective services.

Balance sheet structure

Funding

The growth in the loan book has signifi cantly reduced our excess

funds during the second half of the fi nancial year. We disposed

of our investment in listed preference shares, where some of

our excess funds were placed. We have successfully obtained

additional funds through the issue of commercial paper. We

obtained further funding through a loan of R150 million from

PROPARCO (the French development agency) after year end.

Our cash and bank balances at month end are normally higher

than during the middle of the month, before clients’ salaries are

deposited and loans are repaid (see chart below). Our business

model therefore requires a substantial buffer of cash that appears

superfl uous at month end and we manage this extremely

conservatively.

Growth in the retail saving book, increased by 51% over last

year. Higher interest rates have made the savings rates offered

by the traditional banks more competitive and we are continually

reviewing this position in order to ensure that we are close to the

market on high value deposits but market leaders on low value

savings accounts. This gives us an advantage in marketing our

products to the mass market, though we do not rely on funding from

call savings deposits to fund term loans. We do utilise a portion of

the savings deposits to fund short term assets such as cash and

very short term loans.

Liquidity

The longer term loan products have changed the liquidity profi le of

the bank. Previously our loan book was mainly short term based,

with a short average duration for assets. The introduction of 36

month loans and the continued growth in 18 and 24 month loans

has changed this signifi cantly. We are therefore extending the

duration of our funding. We have enough history on our savings

loan means that we expect to write off 12 times that percentage Balance sheet struucture

9%

8%

7%

6%

5%

4%

3%

2%

1%

0

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17

Loans over 90 days in arrears as percentage of contractual instalments

Months since advance

6 month 12 month 18 month 24 month 36 month



products in order to determine the stable core component of the

retail deposits and this is utilised to fund short term assets such as

cash and very short term loans. Capital and long term funding is

used to fund the medium and long term loan products, as well

as fi xed assets.

Taxation

Out tax loss was fully utilised during the 2006 fi nancial year and

together with our profi t growth, this had an impact on cash fl ow in

the current fi nancial year compared to previous years. Tax paid in

the current year amounted to R109 million compared to R21 million

in the 2007 fi nancial year.

Our approach to tax risk is very conservative and benchmarking

indicates that our tax contribution relative to indicators such as

profi tability and size is above average compared to similar and

larger listed companies.

Capital

The growth in the loan book furthermore reduced our capital

adequacy ratio as planned. The calculation of capital adequacy

ratios has changed after the introduction of the Basel II Framework

for Capital Adequacy as prescribed by the South African Reserve

Bank from 1 January 2008.

Basel II requires that capital be held against all the different risks

in the bank, with lower levels of capital required in cases where

policies, systems and procedures are in place to address these

risks, where the risks can be quantifi ed more accurately through

sophisticated event tracking and modelling and where the risks are

more predictable due to characteristics such as high volumes of

low value transactions.

We believe that our strategy of focus on a single niche market

gives us advantages in all of the requirements above.

The calculation of capital required for operational risk under

the Basic Indicator Approach (BIA) is a generic measure and is

based on the gross income for the preceding three years as

a proxy of the scale of a bank’s operational risk. In terms of the BIA

Capitec’s capital adequacy ratio at 29 February 2008 amounted

to 36%.

We will replace the BIA with the Alternative Standardised Approach

(ASA) with effect from 1 April 2008 after the South African

Reserve Bank approved our application, subject to standard

conditions, as part of the capital planning process. This will reduce

our capital requirements and allow further growth from our current

capital base.

According to our best estimate, if the ASA had been used in the

calculation of the bank’s capital adequacy as at 29 February 2008,

the capital adequacy ratio would have been 53% as against the

36% reported using the BIA.

We will consider more advanced methods for other areas as our

capital requirements and the benefi t from the application of more

advanced methods evolve over time.

André du Plessis

Chief Financial Offi cer

Loan book movement compared to retail deposits - February 2008

2 300

2 200

2 100

2 000

1 900

1 800

1 000

900

800

700

600

500

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29

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Straight to number one

Financial Mail - Top Companies

29 June 2007

“This year’s top company, Capitec, achieved

a rare feat, coming from nowhere

to head a new-look top 10 list.”

Financial Mail


C a p i t e c B a n k H o l d i n g s L i m i t e d1 6 C a p i t e c B a n k H o l d i n g s L i m i t e d

Directorate and Executive

Independent non-executive

Kevin Alexander Hedderwick (55)

Kevin joined the Capitec and Capitec Bank boards on 10 December 2007.

He is the chief operating officer of Famous Brands. He has an excellent

business retail record, including food, beverages and franchising. He

has held senior executive positions in a number of prominent companies

including SAB, Distell and Foodcorp. Prior to joining the Famous Brands

Group, he was a partner and managing director of Keg Franchising.

Michiel Scholtz du Pré le Roux (58) BComm LLB

Michiel was appointed chairman of Capitec and Capitec Bank on 1 April

2007. He is the founder of Capitec Bank and was chief executive officer

of the Bank until 2004. Michiel is also chairman of Quince Capital and a

board member of Zeder Investments. Michiel was managing director of

Distillers Corporation (SA) from 1979 to 1993 and from 1995 to 1998,

managing director of Boland PKS, NBS Boland and BoE Bank.

Merlyn Claude Mehl (Prof) (65) PhD (Physics)

Merlyn serves on the boards of various companies. He was previously

chancellor of Peninsula Technikon and chief executive of the

Independent Development Trust. He is presently executive chairman of

Triple L Academy.

Nonhlanhla Sylvia Mjoli-Mncube (49) MA City and Regional Planning

Nonhlanhla is economic advisor to the deputy president of South

Africa. She has formerly chaired several companies and has worked

in leadership positions in South Africa and the USA. She presently runs

her own investment company, Mjoli Development Company and sits on

the boards of inter alia Cadiz Holdings and Pioneer Foods.

Jan Georg Solms (53) BAcc, CTA, CA(SA)

Johnnie has been a member of the JSE since 1981 and is a stockbroker

and executive director of stockbrokers Independent Securities Holdings.

Jacobus Pieter van der Merwe (59) BA, CTA, CA(SA)

Pieter joined the Capitec and Capitec Bank boards on 27 September 2007.

He is an experienced retail banker. He commenced his career in banking

as chief accountant at Boland Bank in 1974 after which he joined Volkskas

Bank as general manager of finance in 1983. After the amalgamation of

Bankorp and Absa he was appointed general manager of Commercial

Bank, responsible for Absa Western Cape (1995 – 1999). In 2000 he

was appointed operating executive of Commercial Banks. In 2001 up to

his retirement in 2006 he was executive director, the last two and a half

years of which he was responsible for Group Administration, Information

Management, IT, Credit and Risk.

Non-executive

Tshepo Daun Mahloele (41) BProc

Tshepo joined the boards of Capitec and Capitec Bank on 1 April 2007. He

is the chief executive officer of the Pan African Infrastructure Development

Fund and deputy chairman of Circle Capital Ventures. He has more than 14

years of experience in project finance, private equity, investment banking

and corporate finance. Previously he was head of Corporate Finance and

the Isibaya Fund at the Public Investment Corporation (PIC). Prior to joining

the PIC he was head of Private Sector Investments at the Development

Bank of Southern Africa (DBSA). Before joining the DBSA he was managing

director of Solutions at Work. Tshepo also held positions at CDC Group Plc

(formerly the Commonwealth Development Corporation), Rand Merchant

Bank and National Sorghum Breweries.

Petrus Johannes Mouton (31) BComm (Maths)

Piet joined the boards of Capitec and Capitec Bank on 5 October

2007. He is managing director of Thembeka Capital, a black-owned and

controlled BEE investment holding company. He serves as non-executive

director on the boards of various companies including Erbacon Investment

Holdings, an AltX-listed company. He has been active in the investment

and financial services industry since 1999.

Chris Adriaan Otto (58) BComm LLB

Chris has been an executive director of PSG Group since its formation.

He has been involved in PSG Group’s investment in microfinance and

subsequent establishment of Capitec Bank of which he has been a

non-executive director since establishment. He is a director of Zeder

Investments, and Channel Life.

Executive

André Pierre du Plessis (46) BComm (Hons), CA(SA)

Chief financial officer

André joined Capitec Bank in 2000 as Executive: Financial Management

and was appointed financial director of Capitec Bank and Capitec in May

2002. He has over 20 years’ business advisory, financial consulting and

strategic and financial management experience. He was chief executive of

Financial Management of Boland PKS and NBS Boland from 1996 to 2000

and a partner at Arthur Andersen where he worked from 1986 to 1996.

Riaan Stassen (54) BComm (Hons), CA(SA)

Chief executive officer

Riaan joined Capitec Bank as managing director in 2000 and was

appointed chief executive officer of Capitec and Capitec Bank effective

31 March 2004. He gained extensive experience in retail and banking

and held senior positions in both environments. Riaan was awarded

the Cape Times/KPMG Business Personality of the Year award on

25 October 2007. The nomination criteria for this award included business

and entrepreneurial excellence and outstanding company performance.


1.4 million clients have made us their bank of choice

“Through our continued innovation we will become

the bank of choice for our market.”

Riaan Stassen CEO Capitec Bank

C a p i t e c B a n k H o l d i n g s L i m i t e d1 8 C a p i t e c B a n k H o l d i n g s L i m i t e d

Management Committee

Riaan Stassen (54) BComm (Hons), CA(SA)

Chief executive officer

André Pierre du Plessis (46) BComm (Hons), CA(SA)

Chief financial officer

Ian Craig Abrahams (39)

Manager – Credit Monitoring

Ian gained extensive experience in credit with Edgars Stores

(1990 – 1997), the Edcon Group (1999 – 2001) and at Standard

Bank Card Division (1997 – 1999). Positions held within the Edcon

Group include branch administration manager, credit manager and

regional Credit Office manager. Positions within Standard Bank

included project manager, collections manager and corporate

card marketing manager.

Jacobus Everhardus Carstens (39) BCompt (Hons), CA(SA)

Chief credit officer

Jaco gained extensive experience in the credit environment

at Old Mutual Bank from 2000 to 2004 serving respectively as

head of credit, head of credit risk: policy and decision support and

assistant divisional manager: credit, pricing and decision support.

Previous positions include being manager at BoE Bank from

1997 – 1999 and assistant manager at Ernst & Young where he

worked from 1992 to 1997.

Faick Davids (31)

Head – Distribution Systems and Procedures

Faick gained wide-ranging experience at PEP Bank from 1999 to

2001 in various aspects of the retail banking environment in which

Capitec Bank has since established itself. He joined Capitec

Bank in 2001 as national conversion manager responsible for the

conversion of existing micro lending branches into fully fledged

banking and deposit taking branches. He is currently responsible

for the development, drafting and communication of all processes

and procedures for branches and other distribution channels

within the Bank.

Carl Gustav Fischer (51) BComm (Hons), MBA

Executive – Marketing and Corporate Affairs

Carl was chief executive of marketing and support services of

Boland PKS from 1999 to 2000. Previous positions include Group

marketing and sales director (1996 – 1998) and Group production/

operations director of Stellenbosch Farmers’ Winery (1993 – 1996).

Gerhardus Metselaar Fourie (44) BComm (Hons), MBA

Executive – Operations

Gerrie was area general manager of Stellenbosch Farmers’ Winery

(1997 – 2000), focusing on distribution and sales.

André Olivier (40) BComm (Hons), CA(SA)

Executive – Business Development

André was a financial risk manager at Boland PKS from 1997 to

2000, after which he was head of operations of PEP Bank, the

micro-lending division of BoE Bank. He gained extensive audit and

business advisory experience with Arthur Andersen.

Christiaan Oosthuizen (53)

Executive – Information Technology

Chris held the position of chief executive of Information Technology

at Boland PKS, where he was employed from 1976 to 2000.

Christian George van Schalkwyk (52) BComm LLB, CA(SA)

Executive – Risk Management and company secretary

Christian was chief executive of credit risk and legal services at

Boland PKS from 1997 to 2000. Previous positions include being

a partner at attorneys Jan S de Villiers (1987 – 1996) and tax

consultant at Arthur Andersen (1985).

Leonardus Venter (46) BA (Hons), MA (Industrial Psychology)

Executive – Human Resources

Leon was a human resources manager at Iridium Africa from 1998

to 1999. Previous positions include manager of human resources

and support at Telkom SA (1993 – 1997) and area personnel

manager at Iscor (1986 – 1992).


Over R19 million invested in skills development in 2008

“Receiving a bursary from Capitec Bank eliminated all financial barriers

that were originally an obstacle to study further. With the bursary

I was able to complete a financial skills course at Unisa in 2007.”

Nonhlanhla Sibisi (sales manager, KZN)


Corporate Governance and

Risk Management ReviewBoard functioning and effectiveness

The Capitec board meets six times per annum. A record

of attendance by each board member is published as per

Annexure A. The Capitec board operates in terms of an

approved charter which, apart from detailing the powers, duties

and responsibilities of the board, also specifi es the reserved

powers of the board and which is reviewed annually.

To allow non-executive directors the opportunity to familiarise

themselves with the Capitec business outside of board meetings,

they are invited to executive meetings, and an annual board

conference is held at which senior managers present the various

aspects of the business to directors. This approach facilitates

access by board members to company information, records,

documents and property.

The board has established various board committees to monitor

the implementation of their plans and strategies.

Board structure and continuity

The board comprises a majority of non-executive directors,

consisting of a proper balance of two executive, three non-

executive and six independent non-executive directors. A

Directors’ Affairs Committee comprising all the non-executive

and independent non-executive directors and chaired by the

chairman of the board has been established and in terms of its

board-approved charter, inter alia, is responsible for recruitment

and selection of new directors.

New appointees are recommended to the board for approval,

subject to the approval of the Registrar of Banks. To facilitate

continuity of the board, one-third of the board retires at each annual

general meeting and has to date been re-elected by shareholders.

During the period under review, the board has been strengthened

by the appointment of one more black director as well as directors

with strong retail and traditional bank exposure.

Chairman/CEO power balance

The roles and responsibilities of the chairman and chief executive

offi cer are separated. Capitec has a non-executive chairman

with proven business acumen and of good standing in the South

African business community.

• He participates actively in the selection of board members;

and

• Ensures that all directors are given opportunity to add value to

the formulation of the strategy of the company.

The chief executive offi cer’s responsibilities include

• Developing and implementing of company strategy;

• Taking initiative in managing relationships with stakeholders

and the investment public in general; and

• Acting as the chief spokesperson on behalf of the company.

The performance of the chief executive offi cer and the board as a

whole, including its committees, are appraised at least annually.

Directors’ selection and orientation

A formal orientation programme consisting of extensive

discussions on the company’s business environment and

operations are held with new directors. In addition, directors are

provided with company records such as copies of board minutes,

applicable legislation and board committee charters.

Directors are invited to attend presentations by independent

specialists on matters relevant to the board in the Capitec

environment and when considered necessary, such presentations

are arranged in-house. Directors are also afforded the opportunity

to attend industry-specifi c training, inter alia, as initiated by the

Registrar of Banks.

Directors’ remuneration

A Remuneration Committee comprising one non-executive

director and three independent non-executive directors considers

matters relating to director and executive remuneration.

This committee executes its responsibilities in accordance with

the terms and references incorporated in the board-approved

remuneration committee charter. Remuneration of directors is

disclosed in 7.4 of the Directors’ Report.

Board oversight

To assist the board in reviewing processes and procedures to

determine the effectiveness of internal systems of control in

the company, the board has established committees with specifi c

mandates to cover all aspects of the Capitec business. These


C o r p o r a t e G o v e r n a n c e a n d R i s k M a n a g e m e n t R e v i e w

2 1

committees report their fi ndings to the board, thereby ensuring that

the decision-making capability of the board and the accuracy

of its reporting and fi nancial results are maintained at high

levels. Information assessed by the board comprises fi nancial as

well as non-fi nancial information and enables the board to assess

the adequacy and effi ciency of corporate governance and

internal controls in operation.

Board committees

The board has established various sub-committees such as

the Executive Management, Management, Risk and Capital

Management, Audit, Directors’ Affairs and Remuneration

Committees, each with an approved charter containing terms of

reference for these committees. Further particulars on each of the

committees are set out in Annexure B.

Board/director evaluation

The Directors’ Affairs Committee meets at least twice a year

to assess, amongst other things, the skills needs of the board.

During the period under review the board was strengthened by

the appointment, inter alia, of a retail expert and the committee

feels satisfi ed that the board composition currently represents an

adequate mix of skills and diverse backgrounds.

Dealing in securities

The board has approved a policy in accordance with the JSE

Listings Requirements in terms of which directors, senior

management and employees with access to management reports

are required to obtain clearance to deal in the shares of the

company prior to transacting.

This policy also bars any trading in the shares of the company

during a prohibited period; standard closed periods are year-

end up to publication of year-end results and at half-year up to

publication of interim results. Emphasis is placed on proper and

correct declaration of interest by directors in compliance with

relevant legislation, including their shareholding in the company.

A register of directors’ interests is circulated at every board

meeting and signed by all members present.

Company secretary’s role

The company secretary administers corporate governance within

the company, supports the chairman in ensuring the effective

functioning of the board and provides the board and directors

individually with guidance on the proper discharging of their

responsibilities. As such the company secretary:

• Strives to inform the board of relevant legislation

• Makes information on the company available to board

members

• Ensures compliance with statutory and regulatory matters and

• Acts as primary point of contact with shareholders.

Auditing and accounting

We are privileged to have a prestigious international fi rm as our

external auditors; both the external auditors and internal audit

department of Capitec observe the highest levels of business and

professional ethics and independence.

The company and management encourage regular coordination

and consultation between external and internal auditors to

ensure an effi cient audit process. Non-audit work performed

by the external auditors is regulated by a policy laid down by the

Audit Committee.

Reporting

Annual and interim fi nancial results are submitted to the Audit

Committee for consideration and recommendation to the board

for fi nal approval.

The Audit Committee’s mandate includes the authority to

determine whether or not the interim report should be subject to

an independent review by the auditors.

The facts and assumptions used by the board to assess

the going concern status of Capitec Bank at each year-end are

recorded and submitted annually, in terms of the Banks Act (Act

94 of 1990), to the Registrar of Banks.

Audit Committee

The Audit Committee is chaired by an independent non-

executive director with years of experience in banking. The

chairman of the board is not a member of the Audit Committee.

The Audit Committee derives its authority and responsibilities

from a board-approved charter with which it has complied during

the year under review.

Audit fees are annually set in advance by the Audit Committee

in a manner which should not impact on the scope of the audit.

Non-audit services rendered by our external auditors are limited

to ad hoc tax advice and other assurance-related services within

the parameters of a policy approved by the Audit Committee

limiting such expense to 40% of the annual audit fee; the

consideration is disclosed in the annual fi nancial statements.



w

Internal Audit

Status of internal audit

The company has an independent internal audit department

with direct access to the chairman and reporting to the chief

executive offi cer. Apart from own employees it functions on a co-

sourced basis with Deloitte as external consultants and in

accordance with a charter approved by the Audit Committee.

The charter formally defi nes the purpose, authority and

responsibility of the internal audit activity and is consistent with

the Institute of Internal Auditors’ defi nition. The head of internal

audit attends all audit and risk and capital management committee

meetings and submits a report to each Audit Committee meeting.

Role and function of internal audit

The internal audit function focuses on adding value to the

operations of Capitec Bank. To this end it emphasises:

• Adherence to company policies and procedures

• Prevention of theft and fraud and

• Production of quality management information.

Scope of internal audit

The department annually submits a coverage plan to the Audit

Committee for approval. The scope of this plan encompasses the

entire business of Capitec Bank and is drafted with the strategic

aim of the Bank in mind. In our developing environment great

emphasis is placed on implementation and effi ciency of systems.

In addition, the operational environment is closely monitored

and assurance derived that controls are functioning adequately.

Increased emphasis is placed on development of centralised

monitoring. In this process, any defi ciency detected in governance

is escalated to management for action.

Risk management framework

and responsibility

Capitec Bank views risk management as a measure of ensuring

a responsible return on shareholders’ equity. Ultimately, the

board remains responsible for risk management. To assist them in

performing this duty, the company is managed through a system

of internal controls functioning throughout the entity so that an

awareness of risk pervades every aspect of our business

and is seen as the responsibility of each and every employee of

Capitec Bank.

Mehl(Chairman)

Mouton

Otto

Van der Merwe

Le Roux (Chairman)Hedderwick

MahloeleMehl

Mjoli-MncubeMouton

OttoSolms

Van der Merwe

Otto(Chairman)

Hedderwick

Le Roux

Solms

Van der Merwe(Chairman)

Mehl

Mjoli-Mncube

Solms

Directors’ Affairs Executive Management Audit RemunerationRisk and Capital

Management

Management

ComplianceInternal Audit

Credit

ALCO

Operational Risk

Management Committees reporting to Risk and Capital Management Committee

Allocation of defi ned risks

Credit ALCO Operational Risk

• credit • interest rate• market • liquidity• counterparty• currency• capital adequacy

• technology• compliance• legal• human resources• reputational• operational• regulatory

Risk Framework

Board of Directors



2 3

C

The board has established a Risk and Capital Management

Committee, chaired by an independent non-executive director.

The committee has a formal charter in accordance with which it

assists the board in reviewing the processes followed to identify

risk and consider such risks in the Capitec Group environment.

The committee also assists the board in ensuring that risk

assessment is an ongoing process and that a formal risk

assessment is undertaken at least quarterly.

Sub-committees comprising executives and senior management

have been established to deal in a structured manner with specifi c

risks facing the company:

• Operational Risk Committee (ORCO) – legal, regulatory

compliance, technology, human resources, operational and

reputational risk;

• Assets and Liability Committee (ALCO) – interest rate, market,

liquidity, counterparty, currency and capital adequacy risk; and

• Credit Committee – credit risk.

Risk and Capital management

Risk management and capital management are directly linked.

Risk capital represents a reserve for those risk exposures where,

after applying cost-effective risk management techniques, residual

risk remains. Residual risk exists given the inherent uncertainty

related to expectations of the future, the potential for unexpected

losses as well as losses expected to occur in the future not fully

captured, accounted and provided for in terms of International

Financial Reporting Standards (IFRS).

In addressing capital matters the Group manages both the so-

called supply and demand factors impacting capital adequacy.

Supply-side risk is the risk related to procuring appropriate capital

resources at appropriate pricing and times to fund operations

and meet the stipulated requirements of regulators and rating

agencies. Demand-side risk is the management of risks impacting

negatively on earnings and capital, which is the traditional risk

management side of the business. Management of demand-side

risk also involves monitoring the growth in risk-weighted assets

which drives the growth in the regulatory capital requirement.

Capital management

The Group’s principal objectives when managing capital are:

• To address the expectations of its shareholders, and so

optimise business activities to ensure return on capital

targets are achieved through effi cient capital management

• To ensure that the Group holds suffi cient risk capital, including

capital to be held as a buffer for unexpected losses to protect

shareholders and depositors, to assure the sustainability of

the Group through the business cycle. This view is consistent

with the Group’s long-term strategy of building value.

The above two principles counter-balance each other by aiming

to maximise returns to shareholders, but not at the expense of the

needs of other stakeholders.

C i B k H l d i L i i d 2 3

Capital Suffi ciency in an Economic Down-turn

Capital demand

Capital supply

Capital suffi ciency

margin

Economic down-turnCCaappittal

Available capital Capital requirement

The CICAAP addresses the sufficiency of capital during a down-turn in the business cycle.

• Typically, capital supply is less due to losses or lower appetite for capital issues at lower prices in an economic down-turn

• Typically, capital demand is higher as risk-sensitive measures will demand more capital reserving, for example deteriorating

credit experience



This approach safeguards the long-term sustainability of the

Group and its ability to continue as a going concern so that it

can continue to provide satisfying returns for all its stakeholders.

Implicit in this responsible approach is compliance with the

capital requirements of the Banks Act and Regulations thereto

(Regulations) and the maintenance of a strong capital base to

support the development and growth of the business.

Capital risk governance

ALCO considers reports on the capital status of the Group

on a monthly basis. ALCO reports to the Risk and Capital

Management Committee in terms of the risk management

framework. Capital adequacy and the use of regulatory capital are

reported monthly to the South African Reserve Bank, in line with

the requirements set out in the Regulations.

Capitec Internal Capital Adequacy Assessment

Process (CICAAP)

In the achievement of its objectives the Group conducts a CICAAP

on an ongoing basis, which drives the Group’s position on capital

management matters. The CICAAP addresses the management

of capital and solvency risk and the risks arising from the

procyclicality of the Group’s specific business operations through

the economic cycle.

The CICAAP reviews the historical, current and future capital

positioning of the Group both from a regulatory and management

or internal capital perspective. An essential element of the process

includes forecasting the Group’s capital supply requirements,

including “stressing” the expected forecast to determine the

sufficiency of capital in a down-turn of the economic cycle as,

typically, regulatory capital demand requirements increase, whilst

qualifying capital supply decreases in times of economic downturn.

In considering the capital requirement for credit risk from a management perspective the Group assesses what outstanding

losses, i.e. losses not written-off or provided for, exist. These are typically the future and unexpected losses not captured in

terms of the IFRS framework.

Statistical projections are made, on a product level, using historical roll rates that are adjusted for hypothetical future economic

scenarios to stress test the sufficiency of capital. Three scenarios were computed:

• Expected economic scenario

• Down-turn economic scenario

• Worst-case economic scenario

In terms of our analysis we are adequately capitalised in the event of a worst-case scenario occurring.

Roll Rates: Clients’ roll rates are their changes in credit status from one period to another. A client’s credit status can

deteriorate (roll forward), maintain the status quo (spin) or improve (roll back).

CICAAP Credit Stress Testing

Impairments

Write-offs

Total Outstanding Loss = Additional Internal Capital Requirement

Outstanding Unexpected

Outstanding Expected

% l

os

s

pe

rio

d e

nd

da

te Impairments

Write-offs

Unexpected Loss

time

The above is a stylised representation of the treatment of losses that may arise on a loan portfolio.



2 5

Part of the process then involves determining appropriate

management actions to address any anticipated capital needs to

weather a down-turn in the cycle.

Risk management is an integral element of the CICAAP given

the inter-relationship between capital and risk management. As

such, management considers the capital required to underwrite

the risks of the business. This is assessed both before and after

applying risk management and risk mitigation techniques so as

to determine the outstanding residual risk and related capital

reserving requirement.

• Broad participation by management

• The CICAAP involves broad-based participation from all the

key risk owners in the Group and it is subject to review by

internal audit and relevant external consulting specialists who

benchmark our process against best practice.

• Basel ll calculation methods for credit and operational

risk capital

• The CICAAP involves assessing capital from a business and

regulatory perspective. The regulatory capital requirement is

calculated using a percentage applied on a base; that base

being the Group’s risk-weighted assets. There are various

methods used for the calculation of risk-weighted assets in terms

of the Regulations. As at the year-end reporting date Capitec’s

calculations of risk-weighted assets for credit risk and equity

risk in the banking book were governed by the application of the

“Standardised” approach, whilst its calculation of operational risk

was governed by the Basic Indicator Approach (BIA). In terms of

the BIA a factor of 1.88 is applied to the average gross income

for the past three years to arrive at a risk-weighted equivalent on

which the minimum capital adequacy percentage is applied to

calculate the capital requirement.

• Quantitative information on capital adequacy is presented below

and in Note 30.6 of the Group’s annual fi nancial statements on

page 90.

• Developments

• Our current internal capital calculations indicate that we are more

than suffi ciently capitalised from a business perspective.

However, we can achieve greater regulatory capital effi ciency

by applying the more advanced approaches for operational and

credit risk management in terms of the Basel II methodologies.

As such we made a successful application to apply the

Alternative Standardised Approach (ASA) for operational risk,

an approach better suited to our business model. We received

notifi cation of approval of our application after year end. The new

ASA calculation method is effective from 1 April 2008. If the ASA

had been used in the calculation of the Banks’ capital adequacy

as at 29 February 2008, the capital adequacy ratio would have

been 53% as against the 36% reported using the BIA.

Our internal calculations on credit risk requirements show that we

can also make signifi cant gains in regulatory capital management

by applying the Foundation Internal Ratings Based approach

C i t B k H l d i L i i t d 2 5

Total regulatory capital requirement 817 462 179 744 814 568 178 248

Credit risk 400 197 147 380 400 885 148 491

on balance sheet 400 197 129 436 400 634 130 547

off balance sheet - 17 944 251 17 944

Operational risk 342 440 - 339 105 -

Equity risk in the banking book 3 606 1 827 3 606 1 827

Other assets 71 219 30 537 70 972 27 930

Property and equipment 49 043 23 346 48 547 22 219

Intangible assets (software) 9 405 6 391 9 405 5 429

Other receivables 12 771 800 13 020 282

2008* 2007** 2008* 2007**

R’000 R’000 R’000 R’000

Group Bank

* Calculated in terms of Basel II rules** Calculated in terms of Basel I rules

Total regulatory capital requirementThe total regulatory capital requirement refl ected in terms of the Regulations is as follows:



(FIRB). This is indicative of the lower risk profi le of our Group

which operates a retail banking business model. Our internal

credit models are already more than suffi ciently sophisticated to

allow us, with only some additional investment and customisation,

to achieve potentially signifi cant savings in regulatory capital

requirements for credit risk. We shall investigate the potential

benefi ts and further requirements in the course of the year ahead.

Restrictions on transfer of capital

As the operations of the Group are in South Africa, the only

restrictions on the transfer of capital within the Group relate to the

statutory limitations on investments in certain associates in terms

of the Banks Act.

Consolidation for the purposes of determining Group

regulatory capital

All subsidiaries are consolidated for both accounting and

supervisory reporting purposes in the same way. All companies

are incorporated in the Republic of South Africa. The registered

banking subsidiary of the Group, Capitec Bank Limited, has no

subsidiaries. Consolidation for regulatory purposes relates to the

consolidation of Capitec Bank Holdings Limited.

The main consolidation entries giving rise to a difference between

Group and Bank capital relate to share options, which are refl ected

on an equity settled basis in the Group, but on a cash settled basis

in Capitec Bank Limited in terms of IFRS 2.

Risk management

The biggest risks facing Capitec reside in liquidity management,

information technology, human resources and credit extension.

The emphasis thus tends to fall in these areas. However, to

enhance shareowners’ and other stakeholders’ interests, all

risks are mitigated to an acceptable level relative to the return

produced by the activity concerned. This remains a central

theme of the manner in which Capitec conducts business. The

company operates in a structured manner with defi ned processes

and procedures enabling risk assessment within a controlled

environment. Existing controls are assessed and if necessary,

adjusted. Thereafter reports are generated at regular intervals to

enable monitoring of risk levels.

Financial risk management

The Group’s concept of day to day fi nancial risk management

extends beyond the IFRS accounting defi nitions of fi nancial risks

and includes the following: credit, liquidity, interest rate, equity risk

in the banking book, currency, solvency and capital risk. The Group

does not have any market or counterparty risk, as understood in

terms of the Regulations, as the Group does not conduct trading

activities as part of its business strategy. Those risks not already

addressed above are discussed:

Credit risk

Credit risk governance

Credit risk management is overseen by the credit committee, a

sub-committee of the Risk and Capital Management Committee.

The composition of the credit committee is broad based and includes

a cross section of executives and relevant managers from the

business. The credit committee meets on a monthly basis to consider

the activities of the credit risk management department, consider

and debate results from arrears and provisioning analysis for the

previous month, and to set and adjust credit policy going forward.

Arrears

We measure arrears rates by dividing the value of loans and

instalments in arrears that arose during a period into the value

of instalments due in that period. This is a better measure than

dividing the loans in arrears by the outstanding loan book as some

of our short-term loans are granted and repaid in the same month.

Monitoring and reporting of arrears

Our Credit Monitoring department tracks arrears to ensure

operational effi ciency and compliance to granting and follow-

up policy by identifying changes in trends and variances from

benchmarks using a variety of tools.

Arrears percentages are reported daily and are evaluated on

branch, regional, operational (provincial) manager and national

levels. Branch performance and incentive targets include arrears

targets, appropriately balanced with sales and profi t targets.

• Daily Arrears Dashboard

Daily reporting is done as early as possible, using the dashboard,

to ensure that immediate pre-emptive action is taken on a

national, regional or branch level as required. All unexpected

spikes are subjected to immediate investigation.

• Credit Events Log

All identifi ed credit events are registered on a central credit

events log and communicated continuously to branches and

operational management. Developments are reported to the

branches by sending updates of the credit events log on at

least a weekly basis.

Economic incidents like employer level retrenchments or industry

level strikes are reported to affected branches and preventative

action regarding restrictions on further lending, affordability

calculations and arrears follow-up is taken. Ad hoc emphasis

on specifi c items is communicated by using periodic Credit Alert

communications.



2 7

Changes in the pay dates of employers are confi rmed pro-

actively. Success is measured daily with emphasis on the big

pay dates, being the 15th, 20th, 25th-31st days of the month.

Incorrect pay date estimations are also registered and quantifi ed

on the credit events log and used to educate all in striving to

prevent recurrences. This approach also highlights which

employers tend not to follow confi rmed payment dates.

Each month credit events listed on the log are quantifi ed and fed

into the loan impairment process and the operational risk register

for reporting to the operational risk committee, where the events are

related to operational risks, e.g. system defi ciencies. All operational

risk incidents like system or interbank challenges are identifi ed,

evaluated and preventative and/or corrective actions are agreed

with the Information Technology or Interbank departments.

• Roll rate analysis

We also monitor arrears trends using observed roll rates,

derived from historic payment profi les generated by our loans

system (the same payment profi les are submitted to the National

Loans Register, soon to be the National Credit Register, and the

same payment profi les form the basis of our loan impairment

models). Variations of the roll rate tables are utilised to understand

the level of rehabilitation in the accounts in arrears and to derive

new credit screening / granting rules and collection strategies:

• First-payment-defaulter reports for early delinquency pockets,

and

• Movement tables to analyse and compare to benchmarks the

component of clients moving to better or worse arrears status.

We analyse all of the above arrears perspectives in the following

dimensions:

Dimensions of arrears analysis

• different products • tranches of sales

• payment method • payment frequency

(differentiating between (differentiating between

bank and non-bank clients weekly/ fortnightly)

(non-bank clients do not

deposit their salary with us))

• client number level • Rand value levels

Bad debts are identifi ed and managed accordingly by way of system

codes, e.g. deceased, under administration, debt review or handed

over. All accounts more than 90 days in arrears are written off on

general ledger level based on expected discounted cashfl ows.

• Weekly credit meetings

Representation at weekly credit committee meetings is broad

based and includes the majority of the members of the executive

management team. These meetings are held every Monday

afternoon and in addition to the executive management team

include key senior members from the fi nancial management

department.

At the fi rst meeting after month-end we discuss the previous month-

end arrears and events listed in the credit events log that had or

would be expected to have an impact on arrears. These items

are then considered in the evaluation of the month’s impairments

fi gure at the same meeting.

At every weekly meeting arrears events, arrears trends,

concentration risk, training requirements, technical requirements,

change management issues, scoring model shifts and new

business referral trends are discussed, actions agreed and

monitored.

Quality of new business

• Vintage graph analysis

We utilise vintage graphs to measure the quality of credit

screening as the trends indicate improvement or deterioration in

each month’s sales (a tranche).

We track the cumulative arrears fi gures at 90 days or handed-over

status (deceased or under administration, etc.) for each tranche

and divide that into the total original instalments payable.

Our market’s ability to pay has also improved over the past year.

Lower interest rates and longer term loans are now offered.

• Process changes

We have proactively made the required changes in our credit

risk management model to maintain and improve existing

levels of arrears against the back-drop of a deterioration in the

economic climate and evident growth in volumes and exposure

due to the roll out of our longer term products (18-month

and 24-month loans in October 2006 and 36-month loans in

October 2007).

We have made improvements in the areas of scoring,

affordability, pay date management, collections and the end-to-

end automation of our processes.

More specifi cally, the following changes to our credit management

process have been completed or are in process:

• Acceptance - standardisation and automation of affordability

and willingness assessment; fraud checks included; an

automated application system that integrates the bureau

enquiry, affordability calculation, product rules, allocation

of terms of business and creation of contract and loan to

payout (Rules Engine) implementation in progress; this will

ensure even better process consistency and enable us to

perform simulations of considered rule sets and champion

challenge these new rules. We will have in-house intelligence



of all applications received and rejected to enhance our

scoring ability.

• Control - proactive pay-date confi rmation; effective collections

via regulated Non Authenticated Early Debit Order (NAEDO)

system; centrally supported early stage follow-up by branches

on a purpose-built system; central follow-up and arrangements

with clients in arrears by specialised call centres; improved

and refi ned collections strategies.

• Recovery – migrated to a user-friendly database to optimise

recoveries; structured and skilled to service debt review

applications.

Collections

• Collection method

• Capitec utilises the regulated NAEDO system to collect

instalments on the pay dates of our clients that do not deposit

their salaries with us. Collections are as mandated by our

clients in terms of their loan contracts; collections are made

from their external bank accounts or clients can deposit their

salary with Capitec and collections are then made from their

Capitec accounts under the same conditions as external

NAEDO debits.

• Daily collection processes

Collections are managed proactively with a central focus

on large employer pay-date management and decentralised

/ branch focus on the smaller local employers. Pay dates are

reconfi rmed, success is evaluated on the morning of pay-date

and follow-up on early stage arrears is performed by the

branches on a special purpose web-based system. Support is

provided to the branches by our Credit Follow-up Area (CFA)

and a central monitoring and control unit which assists

branches in managing arrears accounts more effectively.

• Early and late stage collection approach

Early collections are performed centrally from an internal

credit call-centre with some outsourcing to third-party call-

centres, based on a predetermined and continuously reviewed

collections strategy. Our legal, or late stage, collections

are handed over to various agents who are responsible for

tracing and legal action. The agents are managed in terms of

mandates and their performance is periodically reviewed. These

agents, the handed over accounts database and recoveries

are managed by our Capitec Collection Services department

(CCS). The Specialised Services area within CCS has the legal

skills, with the support of our Legal department in the Risk

Division, to manage the debt review applications, deceased

estates and under administration cases.

Credit Policies

The credit committee reviews the various policies at least

annually.

Impact of the National Credit Act (NCA)

Our NCA project addressed all technical and process requirements

before 1 June 2007, the main elements being:

• Automated quotes and pre-agreements.

• New interest rate and fee structure, instead of the fl at rate

structure that our market was used to, which we have phased

into our business since November 2006.

• Our affordability calculation was already automated and

standardised on a client level for each loan advance we

made but we added functionality to enable the printing of the

affordability calculation on the contract.

• The debt review status codes were added to our system and

we can automatically issue the notice of possible handover to

our clients when required.

Some of the intended outcomes fl owing from the implementation

of the NCA on a national level are still work in process. Capitec has

adopted a cooperative approach, working with the National Credit

Regulator (NCR) to resolve the following outstanding matters:

• We take part in the moratorium offered on debt review

applications through the Banking Association to help the debt

counselling process get off the ground.

• We have signed an agreement as a member of the National

Debt Mediation Association as part of our efforts to facilitate

the best possible route to follow for any distressed client.

• We are registering with the Credit Providers’ Association to

support the creation of the intended National Credit Register.

At Capitec we welcome what the NCA brought to our market:

• Protection (cost to consumer by all credit providers, the

demonstration of affordability by all credit providers and debt

counselling cooperation by all creditors)

• Opportunities (loans of over R10 000, longer term and a wider

market)

• Integration (microlending, retail and banking).

Credit-granting criteria

We base our credit acceptance decision on the applicant’s

Behaviour (willingness to pay), Ability to pay and the Source of

payment (BAS):

• How you pay (loan instalments paid from salary deposited with

Capitec - “Bank” client, collections for “Non-Bank” client via

NAEDO or the client is a cash payer)

• Who you get paid by (employer pay-date stability)



2 9

GROUPRGRROUPP

Average gross Aggregate gross Exposure post risk Risk weights

exposure (1) year end exposure (2) mitigation (2) (3) (2)

2008 2007 2008 2007 2008 2007 2008 2007 R’000 R’000 R’000 R’000 R’000 R’000 % %

Total gross credit exposure 2 082 374 1 836 290 2 385 173 1 895 186 2 377 613 1 895 186

On balance sheet 2 074 874 1 459 191 2 377 673 1 518 087 2 377 673 1 518 087

Corporate 16 193 85 022 16 582 48 351 16 582 48 351 100 100

Sovereign (SARB) 131 831 125 357 139 249 142 329 139 249 142 329 0 0

Banks 125 458 493 985 46 284 461 202 46 284 461 202 20 20

Retail loans - performing 1 616 886 659 158 1 929 021 762 692 1 929 021 762 692 75 100

Retail loans - impaired 184 506 95 669 246 537 103 513 246 537 103 513 100 100

Off balance sheet 7 500 377 099 7 500 377 099 - 377 099

Corporate guarantees 7 500 7 500 7 500 7 500 - 7 500 100 50

Retail - approved undrawn loans - 135 701 - 135 701 - 135 701 75 50

Capital and rental commitments - 233 898 - 233 898 - 233 898 0 20

Analysis of regulatory credit exposure

(1) Average gross exposure is calculated based on an average using daily balances for the six months prior to the reporting date as required by the Regulations.(2) Items are reported in line with the Regulations in force at the respective dates and represent exposure before the deduction of qualifying impairments. In

certain instances the Regulations require the use of averages based on daily balances for the reporting month.(3) Represents exposure after taking into account qualifying collateral in terms of the Regulations. Amounts are shown gross of qualifying impairments.

sed on an average using dai

ations in force at the respe

y balances ffor the six mont

ctive dates and represent

hs prior to th the reporting dat

exposure befoore the deduc

e as requuireired bd by tthhe Reegula

tion of qualifyiing impapairmee

BANK

2008 2007 2008 2007 2008 2007 2008 2007 R’000 R’000 R’000 R’000 R’000 R’000 % %

Total gross credit exposure 2 085 630 1 833 761 2 387 805 1 902 061 2 380 305 1 902 061

On balance sheet 2 076 123 1 454 174 2 378 298 1 522 474 2 378 298 1 522 474

Corporate 21 031 85 022 20 797 53 584 20 797 53 584 100 100

Sovereign (SARB) 131 831 125 357 139 249 142 329 139 249 142 329 0 0

Banks 124 990 493 139 45 816 460 356 45 816 460 356 20 20

Retail loans - performing 1 614 114 654 987 1 926 248 762 692 1 926 248 762 692 75 100

Retail loans - impaired 184 157 95 669 246 188 103 513 246 188 103 513 100 100

Off balance sheet 9 507 379 587 9 507 379 587 2 007 379 587

Corporate guarantees 9 507 9 988 9 507 9 988 2 007 9 988 100 50

Retail - approved undrawn loans - 135 701 - 135 701 - 135 701 75 50

Capital and rental commitments - 233 898 - 233 898 - 233 898 0 20

BAABBANKK

2008 02007 2008 020007 20008 020007 2008 07200

Average gross Aggregate gross Exposure post risk Risk weights

exposure (1) exposure (2) mitigation (2) (3) (2)

• When you get paid (pay-date logic with regard to for example

public holidays) and on what frequency (weekly / fortnightly /

monthly).

The willingness to pay is established externally by enquiries

performed and bureau related policy rules automatically applied on

bureau scores and bureau data (system driven). This information

is supplemented internally by application of an arrears indicator

(system driven). Fraud checks are included in the automated

bureau enquiry. The ability to pay is assessed after evaluation

and capturing of payslip and bank statement information

(system driven).

The source of payment is established by evaluating the payslip

details, bank statement and again when confi rming employment.

The source documentation is scanned and electronically fi led as

proof of verifi cation.



The risk weightings refl ected are the standard risk weightings

applied to exposures as required by the Regulations. For the 2008

fi gures these are the risk weights in terms of the standardised

approach to credit risk. Where the Regulations refer to credit

ratings, the Group applies Fitch (international) ratings for all

exposures to determine the relevant risk weighting in line with the

Regulations’ mapping requirements. Refer to Notes 30.6 and 6

in the annual fi nancial statements, respectively, for information

on risk-weighted assets and a reconciliation of identifi ed and

unidentifi ed impairments. All the impairments shown in Note 6

relate to the retail personal loans portfolio.

In compliance with the Regulations, certain credit exposures

totalling R16.7 million (2007: R96.9 million) were deducted from

qualifying capital and reserves.

2 385 173 1 895 186 2 387 805 1 902 061

Finance intermediation (Banks) 46 283 482 533 45 816 481 686

Wholesale and retail trade 14 168 11 903 17 617 19 625

Sovereign (SARB) 139 249 142 329 139 249 142 329

Retail personal loans

Performing 1 922 353 934 252 1 922 353 934 252

Impaired 246 538 63 251 246 188 63 251

Other 16 582 260 918 16 582 260 918

* Calculated in terms of Basel II rules ** Calculated in terms of Basel I rules

2008* 2007** 2008* 2007**

Group R’000 Bank R’000

Sector

Analysis of gross exposures by industry sector in terms of the Regulations

All exposures are performing unless otherwise stated.

Rating Grades and related Risk Weightsnd relRating Grades ag lated Risk Weightsg

AAA to AA- A+ to A- BBB+ to BBB- BB+ to B- Below B- Unrated

Sovereigns 0% 20% 50% 100% 150% 100%

Public-sector entities 20% 50% 50% 100% 150% 50%

Banks 20% 50% 50% 100% 150% 50%

Security fi rms 20% 50% 50% 100% 150% 50%

Banks: short-term claims 20% 20% 20% 50% 150% 20%

Security fi rms: short-term claims 20% 20% 20% 50% 150% 20%

AAA to AA- A+ to A- BBB+ to BB- Below BB-

Corporate entities 20% 50% 100% 150% 100%

Short-term credit assessment

A-1/P-1 A-2/P-2 A-3/P-3 Other

Banks and corporate entities 20% 50% 100% 150%

Ratings are not applied to retail exposures. A standard risk weight of 75% is applied to performing exposures whilst impaired exposures

attract a standard 100% risk weight.

The following table of risk weights applies in terms of the standardised approach to credit risk for portfolios other than retail.

< 60 days 219 905 90 009 219 555 90 009

60 - 90 days 26 633 15 864 26 633 15 864

246 538 105 873 246 188 105 873

2008 2007 2008 2007

Group R’000 Bank R’000

Ageing

Ageing of impaired advances



3 1

Liquidity

The Group manages liquidity cautiously and conservatively.

It operates an uncomplicated liquidity profi le with a preference

for long-term fi xed funding. The Group has exposure to funding

liquidity risk but not to market liquidity risk as the Group does not

conduct a trading operation.

Liquidity risk governance

Liquidity risk is managed by ALCO in terms of the Group risk

framework. ALCO comprises broad representation by

executive and senior management and meets monthly to

consider the activities of the treasury desk which operates in

terms of an approved treasury management policy and in line with

approved limits. The Group also has the benefi t that it has an

uncomplicated structure with one treasury desk with a direct

reporting line to the chief fi nancial offi cer in line with the general

Group ethos of fl at reporting structures.

ALCO receives reports on a monthly basis of daily balances

on ATMs and funds in transit with cash management service

providers, teller cash and money market balances. Other reports

include a treasury desk maturity ladder, asset-liability matching,

deposit concentrations, progress on funding initiatives, business

as usual maturity and contractual maturity reports and minimum

liquid asset and reserve balance compliance reports.

Principal policies

Compliance with the treasury management policy results in a low

risk liquidity structure. We are not exposed to the uncertainty

that accompanies the use of corporate call deposits as a

funding mechanism and our asset structure, whilst growing in

duration, is still relatively short-term in nature. The principal risk

management policies governing the management of liquidity risk

as defi ned in the treasury management policy are:

• Wholesale deposit funding is limited to contractual maturities of

two months or more.

• Utilisation of retail deposit funding is limited to funding short-

duration assets. Surplus retail funding is maintained in call

accounts with internationally rated A-1 (short-term rating) South

African banks.

• Adequate liquid assets must be maintained in terms of the

Banks Act Regulations to fund the liquid asset requirement

and the reserve account, and to maintain collateral for balances

on the South African Multiple Option Settlement (SAMOS)

system account.

Daily cash management

The Group’s daily liquidity requirements are managed by a single

treasury desk that forecasts daily funding requirements. This

is achieved by forecasting liquidity commitments which can be

summarised in two broad categories: those which are considered

as day-to-day fl ows and those that relate to large singular

obligations.

Daily roll-overs and withdrawals by the retail personal market,

growth in the loan book, infl ows from settlements adjusted for

expected default and cash-in-transit items are forecast and

combined with the scheduled contractual cash in-fl ows and out-

fl ows in terms of the wholesale funding programme and periodic

commitments such as dividend and tax payments.

Treasury management maintains regular daily contact with

the central branch management offi ce or Business Support

Centre (BSC) to manage the in- and out-of-branch ATM

requirements. Teller cash is maintained at a minimum. The

forecasting is supported by behavioural modelling conducted

on a regular basis to determine business as usual cash fl ow

requirements including cash stress points in any given month.

The modelling is adjusted for seasonal variations based on

historical experience as adjusted for expectations around

projected growth and current market dynamics.

The treasurer has regular contact with all the Group’s large

wholesale depositors to understand their intentions regarding

the roll-over of wholesale deposits and negotiation of funding

from time to time.

The treasury management desk maintains portfolios of highly

liquid assets that can be liquidated to meet unexpected variances

in forecast requirements. In line with the Group’s preference

for long-term fi xed funding the treasury actively pursues

medium- and long-term funding opportunities to fund the

budgeted growth in the activities of the Group.

Deposit management

From a management perspective, no funding is regarded as

“permanent” other than funding contracted for fi xed terms. We

have an observed “core” deposit base within the retail savings

component of our deposits which we consider for both interest

rate and liquidity purposes.

We utilise statistical techniques to estimate this core having due

regard for the fl uctuations in day-to-day cash requirements, the

related supporting historical data, as well as our future expectation



of daily cash fl ows. The established result is then subject to a

review by senior management and the core is established at a

conservative percentage of the empirically determined result. Our

internal defi nitions of core and fl uctuating deposits are formally

authorised by ALCO.

Interest rates are reviewed monthly to ensure that deposit

rates remain competitive. Treasury management assesses

concentration risk within the deposit portfolio and maintains a

diversifi ed funding base. Treasury management constantly

reviews the effi cient utilisation of cash resources and evaluates

new liquidity initiatives to improve the liquidity profi le of the Group

that may occur.

Liquidity contingency planning

ALCO receives, on a monthly basis, a stress mismatch report

which simulates a stress scenario based on the current asset and

liability structure of the Group for the reporting month. The report

also considers the available sources of stress funding to address

any strain on the cash fl ows of the Group that may occur.

Refer to Note 30.5 of the annual fi nancial statements for

quantitative detail on the Group’s static, contractual liquidity

maturity gap analysis.

Interest rate risk

The Group currently has a conservative interest rate profi le and

is less interest sensitive than the general banking industry.

The Group’s equity and profi t and loss have limited uncontrolled

exposure to changes in interest rates. This is because the Group

operates a fi xed and discretionary interest rate profi le for most

assets and liabilities.

Interest rate risk governance

ALCO meets formally at least monthly to, inter alia, consider the

sensitivity of the Group to interest rate movements and to review

the results of management’s analysis of the impact of interest rate

movements, including the results of model outputs. ALCO also

receives information on yield curve developments, money market

interest rates, an economic evaluation with analysis of the likely

impact on interest rates and interest rate repricing analysis.

In a declining interest rate environment the Group’s treasury

management department may on approval of the ALCO swap out

fi xed rate exposure if the Group is of the view that the environment is

entering a period of sustained low interest rates in order to minimise

funding costs. ALCO also considers the terms and durations of

fi xed term funding arrangements in view of the medium- to long-

term interest rate environment when negotiating pricing.

Regulatory sensitivity analysis

The regulatory sensitivity analysis refl ects the relative insensitivity

of the Group’s equity based on the impact of a 200 basis point

increase or decrease in interest rates, calculated on a discounted

basis.

The sensitivity of shareholders’ equity is analysed by discounting

the future, run-off cash fl ows, for monetary items, inherent in

the balance sheet at balance sheet date. A 200 basis points

upward and downward parallel shift on a zero coupon yield curve

is employed to discount the cash fl ow data. The yield curve is

constructed on a best decency basis utilising relevant government

bond data.

Cash fl ows for fl oating rate items differ under the specifi ed

scenarios (being the upward or downward shift in rates) whilst

those for fi xed rate assets and liabilities remain constant. The

resulting cash fl ow sensitivity is expressed as a percentage

change against the benchmark (expected) cash fl ows discounted

at the expected yield curve rates before any application of the

upward or downward shift.

A differentiation is made between the sensitivity calculated on the

IFRS basis and that disclosed here, calculated on a regulatory

basis, as the regulatory basis considers the overall sensitivity of

the value of equity based on a discounted cash fl ow basis whilst

the IFRS sensitivity is prepared on an undiscounted basis.

Equity risk in the banking book

Capitec does not deal or maintain a proprietary position in equity

investments. For a limited period the Group invested surplus cash

in preference shares issued by banks in order to secure better

after-tax returns than those offered in the general money market.

Equity investments in the Group at the 2008 year-end are strategic

in nature being a consequence of normal strategic operational

transactions.

All unrealised gains and losses were included in the Group’s

income statement. There are no latent unrealised gains or losses

on equities not recognised in the income statement and balance

sheet.

y

t

s

a

nalysis refl ects the relative insensitivity

y

Sensitivity of equity

200 basis points shift R’000 %

Increase 5 169 0.6

Decrease (8 768) 1.0

2008



3 3

Regular and frank discussions between managers on operational

risks and challenges as well as daily interaction of the executive

have contributed to the success of the Group to date. Whilst

this will continue to be a key value in the business, the Group

has enhanced its operational risk management capacity to

support growth.

A dedicated operational risk manager is responsible for policy,

providing guidance in terms of best practice, ensuring consistent

implementation and reporting of material exposures or trends to

the board and regulatory authorities. Line management accepts

accountability for the identifi cation, management, measurement

and reporting of operational risk.

The three primary operational risk management processes in the

Group are risk assessment, loss data collection and the tracking

of key risk indicators. The results of these processes are utilised

to raise awareness of operational risk management and to

enhance the internal control environment with the ultimate aim of

reducing losses.

The Group also maintains a comprehensive insurance

programme to cover losses from fraud, theft, professional liability

claims and damage to physical assets.

Business continuity planning

The Group has a documented business continuity and disaster

recovery plan (BCP) that documents processes to be followed

should an extreme event occur. The BCP is tested periodically.

Reputational risk

Capitec views reputational risk as a function of the management

of all other risks and the Group’s communication strategy in the

marketplace. If the other risks in the Group are well-managed and

this is adequately communicated to the market we are appropriately

managing reputational risk. In terms of management approach

reputational risk is dealt with by the operational risk committee.

Reputational risk is managed on an ongoing basis through

compliance with the disclosure and media policies of the

Group. Disclosure of Group information is made in our annual

fi nancial statements, via public statements made by authorised

spokespersons and through periodic disclosure of information on

our website in terms of the Banks Act requirements.

Compliance risk

The Group defi nes compliance risk as the risk that the procedures

implemented by Capitec to ensure compliance with relevant

statutory, regulatory and supervisory requirements are not

The Group did not hold any investments in listed equities at

year-end.

Currency risk

All the Group’s operations are within South Africa. The Group

hedges its limited exposure to currency fl uctuations which arise

on the importation of capital equipment and technological support

services. The Group also has some currency exposure on its

strategic investments in VISA and MasterCard.

Hedging

At this time the Group’s authorised use of derivatives as risk

mitigation instruments is limited to using forward foreign exchange

contracts (FECs) to cover obligations relating to capital equipment,

technology and technology support services needed for the core

banking activities. FECs are purchased to exactly match the total

value of the underlying foreign currency commitment.

Use of any other derivatives must fi rst be approved by ALCO prior

to transacting.

Operational risk

Operational risk is defi ned as the risk of loss resulting from

inadequate or failed internal processes, people and systems

or from external events. This defi nition includes legal risk but

excludes strategic and reputational risk.

Operational risk governance

Operational risk is managed in terms of the Group’s Operational

Risk Framework (ORF), which is a subset of the risk management

framework. The Operational Risk Committee (ORCO) has been

established to oversee the operational risk profi le of the Group. The

role of the ORCO is to direct, govern and coordinate operational

risk management processes in the Group, in accordance with an

approved policy that sets out the expectations and responsibilities

relating to operational risk management.

The heads of the Forensic, Internal Audit, Legal and

Compliance and Operational Risk management units are

members of the ORCO and provide independent monitoring.

ORCO also addresses the aspect of technological risk and the

Head of the Group’s Information Technology department is a

member of the Operational Risk Committee.

Management of operational risk

The management of operational risk is inherent in the day to

day execution of duties by management and always has been

a central element of the management process.



w

adhered to and/or are ineffi cient and ineffective. The Group has

a Compliance Management System (CMS).

To achieve successful implementation of the CMS, software was

sourced to assist with the assessment of compliance risks, with

the documentation of controls and with monitoring activities.

Compliance champions were identifi ed, appointed and trained to

assist the Group compliance offi cer in addressing compliance in

the Group.

The Group has identifi ed the Banks Act, Companies Act, Financial

Intelligence Centre Act, National Payments System Act, Security

Services Act and the National Credit Act as key aspects of

legislation that should be focussed on in terms of CMS activities.

This focus achieves a balanced application of compliance activities

relative to the ambit of the business of the Group.

Compliance risk is dealt with by the operational risk committee.

Key accounting policies relevant to the

interpretation of the Group’s risk exposures

The key accounting policies relevant to the interpretation

of the Group’s risk exposures are contained in the Group’s

annual fi nancial statements on pages 62 to 70.

3 5C a p i t e c B a n k H o l d i n g s L i m i t e d 3 5C a p i t e c B a n k H o l d i n g s L i m i t e d

Annexure A – Attendance by Directors

Annexure B – Composition of board and board committees Frequency of Committees Purpose Composition Quorum meetings

Annexure A ndance by Directoors– Atten

Committees Board Audit Remuneration Risk and Directors’ Capital Management Affairs

Number of meetings in the

period of review 6 3 4 2 2

MS du P le Roux (Chairman) 6 3* 4 - 2

AP du Plessis 6 3* 1* 2* -

KA Hedderwick(1) 1 - - - -

TD Mahoele(2) 4 - - - 2

MC Mehl 5 - 3 2 2

NS Mjoli-Mncube 5 3 - - 2

JF Mouton(3) 2 1* - - -

PJ Mouton(4) 2 - - - -

CA Otto 6 3 4 - 2

JG Solms 6 - 3 2 2

R Stassen 6 3 4* 2* -

JP van der Merwe(5)(6) 3 2 - - 1

J van Zyl Smit(7) 2 1 - - -

6 3* 4 - 2MS du P le Roux (Chairman)

KA Hedderwick(1) 1 - - - -

5 - 3 2 2MC Mehl

JF Mouton(3) 2 1* - - -

6 3 4 - 2CA Otto

6 3 4* 2* -RR Stassen

JJ van ZylZyl Sm Smitit(7)(7) 22 11 -- - - y

Notes:(1) Appointed to the board effective 10 December 2007 (2) Appointed to the board effective 1 April 2007(3) Resigned from board effective 4 October 2007 (4) Appointed to the board effective 5 October 2007

(5) Appointed to the board effective 27 September 2007(6) Appointed chairman of the Audit Committee effective 27 September 2007(7) Resigned from the board effective 26 September 2007

* Attendance by invitation

1. Board of Directors

2.1 Executive

Management

Committee

The Board of

Directors is

responsible for the

strategy and overall

management of the

company

Responsible

for operational

decision making

and approvals of

administrative nature

on an ongoing basis

The Board consists of:

3 non-executive directors

TD Mahloele (appointed 1 April 2007)

JF Mouton (resigned 4 October 2007)

PJ Mouton (appointed 5 October 2007)

CA Otto

6 Independent non-executive directors

MS du P le Roux (Chairman)

KA Hedderwick (appointed 10 December 2007)

MC Mehl (Prof)

NS Mjoli-Mncube (Ms)

JG Solms

JP van der Merwe (appointed 27 September 2007)

J van Z Smit (Dr) (resigned 26 September 2007)

2 executive directors

R Stassen (CEO)

AP du Plessis (CFO)

R Stassen (Chairman)

AP du Plessis

GM Fourie

CG van Schalkwyk

A majority of directors

for the time being in

offi ce of which at least

50% must be non-

executive

3 members

6 times a year

Once a week

Annexure B – Composition of board and board committees

Frequency of Committees Purpose Composition Quorum meetings

2.2 Management

Committee

Responsible for

operational decision

making and

implementation of

strategic decisions

approved by the

board

R Stassen (Chairman)IC Abrahams*JE CarstensF Davids*A P du PlessisCG Fischer GM FourieA Olivier C Oosthuizen CG van Schalkwyk L Venter * Appointed to the management committee in February 2008

3 members Once a month

(members meet

weekly to report

on operational

matters)

3. Directors’ Affairs

Committee

Responsible for

evaluation of board

effectiveness; senior

management and

board succession

planning; corporate

governance

All non-executive directors Majority of members Twice a year

4. Audit Committee** Oversees fi nancial

controls, reporting

and disclosure

JP van der Merwe (Chairman)

MC Mehl

NS Mjoli-Mncube

JG Solms

Independent attendee

HD Nel (External audit partner – PricewaterhouseCoopers)

Management attendees

J-HC de Beer (Compliance offi cer)

J Delport (Operations Risk Manager)

AP du Plessis

J Gourrah (Internal Audit)

R Stassen

CG van Schalkwyk (Risk management) (secretary)

50% of members of

which 50% must be

non-executive directors

Three times a year

5 . Remuneration

Committee***

Directors’ and

senior executives’

remuneration is

discussed and

determined as well as

levels of remuneration,

adjustment thereof at

intervals and, when

applicable, additional

remuneration such as

bonuses and incentives,

including share option

incentives

CA Otto (Chairman)

KA Hedderwick

MS du P le Roux

JG Solms


R Stassen

L Venter

Majority of members Twice a year

6 . Risk and Capital

Management

Committee***

Identifi cation of all risks

and assists the board

in reviewing the risk

management systems

and processes and the

signifi cant risk facing

the company

MC Mehl (Chairman)

PJ Mouton

CA Otto

JP van der Merwe


J-HC de Beer

J Delport

AP du Plessis

J Gourrah

R Stassen

CG van Schalkwyk

Majority of members Twice a year


** Reconstituted in March 2008

*** Reconstituted in April 2008


More than 187 non-profit organisations have benefited

Corporate Social Investment Programme

“The Carel Du Toit Centre is incredibly grateful for Capitec Bank’s

generous donation. Thanks to your support more hearing impaired children

can now learn to speak and become part of the hearing and speaking world.”

Laurette du Preez, head of the Carel du Toit Centre.


Sustainability Review

The report describes the sustainable business practices of the

Group that strive for economic prosperity and growth whilst

maintaining and, where relevant, encouraging ecological balance

and social progress. Certain aspects relevant to the Sustainability

Review, such as the corporate profi le, strategy, corporate

governance and risk reporting, are not duplicated in this section

as they are covered elsewhere in the annual report.

This sustainability report has been compiled using guidelines and

criteria developed by the various agencies which monitor corporate

sustainability, but has also been adapted to address issues

specifi c to our business and industry. The target audiences for

this report include all stakeholders that have an interest in

the activities of the Group, with particular emphasis on our

shareholders, clients, employees, funders and regulators.

Verification and indexes

In 2007, Capitec participated for the fi rst time in the annual

assessment for inclusion in the Socially Responsible

Investment (SRI) Index, in an effort to gain recognition for the

measures implemented by the Group to ensure sustainable growth.

The JSE SRI Index has been designed to create a benchmark

index in response to growing interest in socially responsible

investment around the world. With this purpose in mind, the

JSE invites companies to participate in its annual assessment

for potential inclusion in the SRI Index which was launched in

2004. As a means of helping to focus the debate around socially

responsible investment, the JSE has developed criteria to measure

the triple bottom line performance of companies in the FTSE/JSE

All Share Index, with the aim of compiling an index comprising

those companies that pass the criteria.

Capitec fared well in terms of governance and social criteria.

However, the lack of a policy dealing exclusively with HIV/Aids

was a point of concern. HIV/Aids subsequently is covered in

our life-threatening diseases policy which also deals with other

life-threatening diseases. In addition, an employee assistance

programme (EAP) has been established. As far as environmental

impact is concerned, the Capitec Group has always attempted to

operate in a manner so as to have as little impact as possible

on the natural environment. In fact, Capitec Bank’s business plan

is in essence conservationist; this is elaborated on in the section

dealing with environmental impact. Nonetheless, we have begun

a process of establishing measures to augment our approach

towards the conservation of natural resources and to sensitise

employees towards the responsible use thereof.

Although the 2007 Sustainability Review has been

integrated in Capitec Bank Holdings’ annual report, it may

be downloaded as a separate report from our website at

www.capitecbank.co.za.

Overview

This sustainability performance review provides an overview

of our sustainability initiatives over the past year. We report on

our consultation with major stakeholder groups and how

their feedback has been incorporated into our business. In

addition, we clarify our initiatives to continue to build a sustainable

business.

Capitec regards its role as that of improving people’s lives by

providing a means to economic upliftment in a responsible

Scope of the review

This review provides an overview of the Group’s policies, practices and performance relating

to its economic, social and environmental activities for the fi nancial year ended February 2008.


S u s t a i n a b i l i t y R e p o r t

3 9

way. Sustainable development for Capitec is founded on certain

principles. It is about providing low-cost banking to our clients

in an accessible and simplistic way. It is about promoting

personal responsibility and sound practices in all our dealings.

It is about providing a safe and rewarding working environment

and promoting cultural diversity and equity in the workplace. It

is about providing a valued and personal service experience to

our clients and providing opportunities for social and economic

development through our core business activities. It is also about

proactively minimising any adverse environmental impact. In order

to achieve this, we have to be receptive towards the expectations

of our stakeholders, and identify and respond to their perceptions,

concerns and needs.

Over the past seven years, Capitec has made progress in

integrating sustainability in all our business operations. The

most signifi cant of these is our ongoing growth in client numbers

by unlocking access to affordable banking through innovation.

We also realise that the cost of credit plays a signifi cant role in

the growth of our economy. Through our ongoing drive to reduce

the cost of credit we have been able to offer clients a real

solution to affordable fi nance. Our business model, driven by

affordability, accessibility, simplicity and personal service,

has been rewarded with solid growth and profi tability this year.

This motivates us to commit to our vision of being an innovative

alternative to traditional banking with even more energy and

passion in 2008/9.

Capitec supports the need for transparency and detailed

reporting to its stakeholders, and understands the role it plays in

ensuring the credibility of the Group’s business practices. We

trust that our sustainability report will be useful to our stakeholders

and we invite constructive feedback.

Riaan Stassen

Chief Executive Offi cer

C a p iC a p i t e c t e c B a n kk H o H o l d i n g s L i m i t e d 3 9



Making Capitec Bank more sustainable

Our vision is to offer banking services to our clients in an affordable, accessible, simplifi ed and personal manner. Our

continuous drive for innovation allows us to make signifi cant improvements to our processes and systems to the benefi t of

our clients. To date we have introduced many innovations. Capitec remains committed to the growth an development

of South Africa and our approach to banking holds signifi cant value in terms of profi t generation, corporate citizenship, job

creation and social upliftment. In doing so we positively engage and infl uence all our stakeholder groupings.

Clients

Affordability

• Our bank offer is still the most affordable in the market.

• We further reduced the cost of credit with price-cuts in April

2007 and in September 2007.

• We have consistently offered the highest savings return

by paying 10% interest on daily savings balances below

R10 000 on our savings accounts.

• We have signifi cantly increased loan terms from a maximum

term of 12 months to 36 months, which reduced instalment sizes

by spreading the repayment of the loans over a longer period.

• Our competitive banking solution includes debit card

purchases that are free of banking charges, cash withdrawals

at the low cost of R1 at retailers and R2.25 for Capitec Bank

ATM withdrawals.

Accessibility

• Our longer banking hours mean we can offer clients 48 more

banking hours per month than our closest competitor.

• With more than 330 branches nationwide we have a signifi cant

retail banking footprint.

• Our account opening process takes only 10 minutes, which

makes access to banking easy and convenient.

• We offer affordable banking to approximately 40 000 new

clients a month and grew our client base to over 1,3 million

in 2007.

• Our mobile banking unit (bank in a box) allows us to open

accounts at clients’ place of work.

• We have upgraded our 24-hour Client Care Centre with

world-class systems allowing us to provide continuous support

to our clients.

• Approvals within minutes and real-time gratifi cation are

integral to our service offering.

• The increase in our ATM network through retail

partnerships to over 765 ATMs provides our clients with

added convenience.

• The launch of retail Internet banking means that we can

now extend our offer to a broader client base.

Simplicity

• Biometrics for clients, introduced in September 2007,

provides our clients with added security.

• Innovative technology used in all our processes means we

can offer paperless banking.

• Our Global One Banking Facility provides clients with

access to transacting, savings and lending within a single

application.

• The Global One Gold Card means our clients can access

their account any time, anywhere in the world.

• Our simplifi ed fee structure provides clients with an

affordable and simplifi ed banking solution.

Personal service

• Employing people from the community in which we place

our branches allows for a personal service experience as

language and cultural similarity can be maintained.

• Simplifi ed, innovative systems and processes mean

consultants can focus on the client instead of doing

administration.

• Our consultants are recruited and trained with a client-

centric mindset

• More than R19.2 million has been spent on the training and

development of branch employees over the past year.

• 133 branch employees were promoted during the year,

driving an incentive for performance.

Our offer



4 1

Access to fi nancial services

According to research by Nielsen and the Finmark Trust on

increased access to fi nancial services, there has been a 9.3

percentage point increase in banked citizens since 2006. Capitec

Bank opens approximately 40 000 new accounts per month,

providing access to fi nancial services to more than 1.3 million

people each year. Our goal is to increase access to banking to

more than 2 million clients by the end of 2008. The advances

made in our product offering will ensure that we can offer clients

real alternatives to traditional banking in an innovative and

affordable way.

Consumer education

Capitec Bank has strengthened its client education drive in

2007. Since the launch of our Financial Literacy programme in

partnership with Unisa in 2005 we have enrolled almost 200

participants for the Unisa Financial Skills course. This course

equips participants with essential fi nancial skills such as

fi nancial planning, debt management, budgeting and saving

for retirement. Our Employer Sales Team is also presenting the

shortened version of this certifi cate course to schools and places

of employment, teaching consumers the basic skills needed to

become fi nancially empowered.

Capitec Bank has partnered with various consumer publications

such as Daily Sun, The Teacher and Isolezwe as well as

community radio stations to run weekly consumer editorials

highlighting fi nancial skills topics from the Bank’s Financial

Skills curriculum.

Increased market awareness

Capitec Bank’s fi rst television and print advertising campaign

has increased market awareness of our offer. The campaign

positioned Capitec Bank as the innovative company we believe

we are and also highlighted the individual benefi ts of our product

and service offering. Personal service has always been one of

the cornerstones of our business model and is key to our overall

value proposition.

In November 2007 Capitec embarked on formal and independent

research to ascertain consumer perceptions about our brand and

offer. We have been very pleased with the positive feedback the

research revealed. Our credibility was evident in the market’s

acceptance of our offer. We also received accolades for our

investment performance when we were ranked third in on

the Sunday Times Top 100 Companies list for investment and

share price performance, and fi rst in the Financial Mail Top 200

Companies list.

Client research

Capitec Bank’s key objective is to increase awareness of the

bank and our unique product offer in the market. The research

measures our key deliverables, and allows us to gauge the extent

to which we have succeeded.

These are the results:

06

07

51.4%

70.5% 2. Yes to prompted awareness

Q: Have you heard of or seen this logo before? (showing participants the logo on a card.)

Savings

06 07

29.4%

54.9%

Loans

06 07

37.7%

57.3%

Money transfer

06 07

10.7%

27.3%

Debit card purchases

06 07

11.1%

27.3%

Stop / debitorders

06 07

11.0%

25.3%

3. Awareness of product offering

Q: What products does Capitec Bank offer?

06

07

16.4%

34.8%1. Capitec Bank

mentioned*

Q: What banks are you aware of?

*Unprompted



57%

6. Perceptions of Capitec Bank

Longest banking hours

23.6%

42.1%

9.3%11.8%

67.1%

46.1%

Agree

06 07

Disagree

06 07

Don’t know

06 07

Agree

06 07

29.0%

46.4%

Disagree

06 07

7.9% 7.8%

Don’t know

06 07

63.1%

45.2%


Lowest banking fees

Agree

06 07

25.9%

45.7%

Disagree

06 07

8.1% 7.8%

Don’t know

06 07

66.0%

46.5%


Paperless banking

Shareholders

Challenges

• Credit approval rates have declined over the past year as

a result of tighter affordability criteria and the new National

Credit Act regulations.

• The Competition Commission’s enquiry into banking fees

will result in other banks reviewing their fee structures.

• The economic realities of high interest rates and food and

fuel infl ation will require guarding against over-indebtedness.

Combatting fraud

Fraud can erode sustainability. To combat fraud, Capitec Bank

follows a zero tolerance policy against fraud, non-adherence

to company policies, dishonesty and disorderly behaviour.

This is driven mainly by our Forensics and Legal departments.

The bank has put several sophisticated measures in place to

ensure compliance with regulations and procedures. The bank

has also implemented biometric access systems to increase

secure access to its branches and buildings. Data integrity is

ensured via high-level data encryption, authorised user systems,

audit trails and other measures. Awareness campaigns amongst

staff are driven by articles in the bank’s inhouse magazine,

e-newsletters and posters. The bank also offers its employees a

Tip-Offs Anonymous line.

Shareholder Profi le

Capitec does not have a controlling shareholder. Its main

shareholders are the JSE-listed PSG Group Limited, a fi nancial

services group of companies holding 34.9% interest in Capitec,

BEE groups and individuals (16%) , and board and management

at 23.3%. The balance of shareholders is made up of fund

managers (4.5%), foreign investors (2.8%) and individuals,

and companies and trusts holding a varied number of shares in

Capitec.

Information provided to shareholders

Shareholders and the public are held up to date on Capitec’s

business through the publication of year-end and interim

results on the Stock Exchange News Service (SENS) and in

the media within a month from such year-end and interim periods.

In addition, the annual report containing the fi nancial results

• A negative turn in our country’s economic conditions could

have an impact on the growth of our lending income streams.

• Financial skills remain a challenge in our target market.

• The increase in demand for retail space had an impact on the

expansion of our branch network in 2007.

• Debt rehabilitation is still a challenge but a partnership with

Stellenbosch University’s Legal Aid Clinic will provide us with

a solid foundation from which we can develop real solutions

in 2008. We also participate in an industry-led debt mediation

initiative under the auspices of the Banking Association.



4 3

is distributed within three months from year-end and a leafl et

detailing half-year results is distributed within two months from the

half-year period to all shareholders and benefi cial shareholders

who have requested to receive this information. Salient details of

dividend payments are announced in the media and, when not

included in the annual report or half-year results leafl et, a leafl et

detailing this information is posted to all shareholders. Capitec

Bank’s website at www.capitecbank.co.za provides a wealth of

information for stakeholders, including clients, service providers

and investors. To ensure transparency, information pertinent to

Capitec’s business and relevant to shareholders and the public is

announced on SENS as and when deemed prudent. Shareholder

queries are dealt with one-on-one by senior management in the

Group and in the secretarial department.

Investor relations

Investor relations are managed by the company secretary who

caters for the interests of shareholders and a team consisting of

our chief executive offi cer and fi nancial director who meet on a

regular basis with asset managers, analysts, general corporate

investors and journalists. The investor community is kept informed

through one-on-one meetings and conference calls, road shows,

investor conferences and fi nancial presentations.

Market feedback is valued and is gleaned through broker reports

Dividends in respect of: 12 months ended 29 February 2008 12 months ended 28 February 2007

Final 75 c 60 c

Last day to trade 16 June 2008 8 June 2007

Record date 13 June 2008 15 June 2007

Payment date 17 June 2008 18 June 2007

Interim 25 c 20 c

Last day to trade 23 November 2007 24 November 2006

Record date 30 November 2007 1 December 2006

Payment date 3 December 2007 4 December 2006

Ordinary shares Preference shares Total shares

Shares in issue at 29 February 2008 81 928 412 1 684 211 83 612 623

Shares in issue at 28 February 2007 81 928 412 1 684 211 83 612 623

Capitec’s performance on the JSE Limited

12 months ended 29 February 2008 12 months ended 28 February 2007

Number of ordinary shares in issue 81 928 412 81 928 412

Market price (cents per share)

High 5649 (13 November 2007) 3800 (6 February 2007)

Low 3000 (22 January 2008) 2605 (1 August 2006)

Closing price 3900 3700

Market capitalisation (R million) 3 195 3 031

Dividends – ordinary shares

for 12 months

and one-on-one discussions with analysts, asset managers and

other opinion leaders.

Meetings held and information shared

Capitec encourages shareholders to attend the annual general

meeting normally held in May. Apart from the annual report containing

the notice of the annual general meeting, each and every benefi cial

shareholder disclosed in our share registers are personally invited to

attend the meeting. As a result, the Capitec annual general meeting

has become a signifi cant event on our shareholders’ calendars. Out

of a shareholder base of approximately 3 000 benefi cial members,

approximately 200 join our board at this annual meeting. To

ensure that each and every vote is accurately accounted for, we have

introduced an electronic method of voting in 2007 which has been

received with appreciation. At this meeting, the chairman of the board

and chief executive offi cer use the opportunity to present an overview

of Capitec business over the past year and shareholders are given

the opportunity to discuss matters of interest concerning Capitec

Bank’s business with members of the board and management.

Credit rating of Capitec Bank

In January 2006 Moody’s Investor Service (Moody’s) assigned a

Baa1.za/Prime-2.za national scale issuer rating to Capitec Bank,

Capitec’s banking subsidiary. In May 2007 Moody’s raised the



Naval Junior Leadership Programme

Equity ownership and control

Highlights

• Direct and broad-based black shareholding through BEE

partner: 16%

• Black directors at board level: 27%

• Black women at board level: 9%

• Black people at executive management level: 18%

(2007: 0%).

Lowlights

• Black women at board level remained unchanged at one

individual. Due to board membership being extended during

the year, the percentage of black women at board level has

been reduced from 10% to 9%.

Control

The Capitec board has three black members. Professor Merlyn

Mehl has been a member of the board since the inception of the

Capitec banking group in 2001, while Nonhlanhla Mjoli-Mncube

has joined the board in 2004. Towards the end of 2004, 100 000

ordinary shares in Capitec were issued to each of Prof Mehl and

Ms Mjoli-Mncube.

In February 2007, Capitec issued 12.21% in Capitec ordinary

shares (10 million) to a black consortium headed by Tshepo

Mahloele. Other than these direct and broad-based black

holdings, Thembeka Capital, a black-owned and controlled

black economic empowerment company, holds a further 3.53%

interest in Capitec.

To date, the Capitec Group has established two employee

schemes to augment employee share ownership in Capitec.

In December 2003, the board approved an Employee Share

Purchase Scheme in terms of which employees wishing to

become co-owners in Capitec are assisted with share purchases.

The extent of shareholding through this scheme is insignifi cant,

being 0.17%. A total of 67.3% of employees participating in this

scheme are black and hold in aggregate 20% of the scheme

shares.

long-term national scale credit rating of Capitec Bank to A2.za,

the short-term rating remained at Prime-2.za. The long-term rating

refl ects a good long-term credit quality and the short-term rating a

strong ability to repay short-term debt obligations.

Gender split of

Capitec

Employee Share

Purchase Scheme

56% Female

44% Male

Demographic

split of Capitec

Employee Share

Purchase Scheme

67% Black

33% White

The issue of a 12.21% interest in Capitec to the BEE consortium

referred to above was approved with the proviso that a 5% interest

in the said consortium be allocated to the Capitec Bank Group

Employee Empowerment Trust. In terms of the rules of this

trust, employees will benefi t from the growth of Capitec through

increased share value.

A total of 16% of Capitec is therefore controlled by black individuals,

companies and trusts.

At Capitec Bank our Human Resource strategy and practices

are devised to enable our people to deliver on our service promise

to our clients. Through our national recruitment drive we employ

talent in support of our strategy, style and corporate culture. It is

of the utmost importance to us to get people onboard who have

a client-centric mindset, have the ability to learn fast, are real

team-players and who are able to thrive within a pressurised

performance-driven environment. We employ our people from

the communities we serve and follow the principle of recruit for

potential and train for skill.

As functional knowledge and competence are seen as fundamentals

of our service model we invest heavily in the development of

our people through various training platforms. Formal training

programmes are supported by a culture of continuous learning to en-

sure high levels of knowledge retention throughout our organisation.

We manage our people through teamwork and develop our leaders

in order to manage our business and people effectively. These

principles of teamwork and performance are supported through our

performance management system and reward strategy.

Employee Report



4 5

Procurement

We have measured our BEE spend for the fi nancial year ended

February 2008 on the old Financial Sector Charter basis, and are

currently transitioning to the broad-based approach.

We have implemented a BEE policy in 2004 in terms of which all

suppliers must state their shareholding in terms of BEE, or supply

us with an agency rating. The policy expects procurement spend

over preset minimum ranges to be from qualifying BEE suppliers,

except for procurement in terms of a global policy for technical

(specifi cally non-commercial) reasons.

All ratings and shareholdings are graded in our procurement

system and the procurement spend is multiplied with a contributing

factor, where A is the highest and is multiplied by 100%, and any

spend on suppliers who cannot supply us with BEE information

or has no black shareholding is multiplied by 0%. In terms of this

system, our total procurement spend with BEE suppliers is 44%.

Transformation of the workforce

Highlights

• Black people at senior management level improved from

9% to 11%.

• Black people at junior management level increased from 45% to

50%.

Lowlights

• Black people at middle management level decreased from

35% to 25%.

In 2007/8, we employed 1 123 new employees of which 1 015

(90.4%) were employment equity appointments. Through our

employment equity policy we implemented an Employment Equity

Forum in 2006 with the objective of engaging employees from

various levels in constructive dialogue regarding improvements

and ideas on employment equity in Capitec.

Skills development

Employment equity initiatives were introduced to attain our

employment equity targets and achieve diversity in the

workplace. During the year we spent over R19 million on employee

training, 9% of our operational salary bill.

Communication

Capitec Bank’s Communication Department plays a key role in

communicating all company and strategic initiatives. With the

launch of our fi rst television and print campaign in February

2007 the department was instrumental in the positioning of the

Capitec Bank brand, building a sense of pride and defi ning

the path ahead for the Bank. An organisation-wide event

ensured that all employees simultaneously viewed the Bank’s

fi rst TV commercial and also ensured a collective understanding

for message and its approach. A special once-off publication of

our inhouse employee magazine – C.Inside – was produced

to commemorate this milestone event. Positive feedback

was received from all over the country. Capitec’s internal

communication strategy strives to always invite and encourage

employee participation whilst also remaining open and direct.

Our communication channels are therefore very well supported

and employees are actively involved in each of these.

C.Inside: A monthly internal employee magazine which is

produced inhouse is used to disseminate information on the

organisation. Articles published in this magazine include general

company information, the company’s involvement in CSI initiatives,

employees’ contribution to the workplace and employee issues

Gender split

60% Female

40% Male

Demographic split

86% Black

14% White

Suppliers

which range from the Bank’s involvement in the community and

client initiatives to the acknowledgement of employees who live the

company values and excel at client service.

CFacts: An electronic weekly educational newsletter used to

communicate the latest developments from different departments

as well as to educate employees on the various aspects of the

business, such as the National Credit Act and new procedures.



Communities by Unisa and funded by Capitec Bank. This course provides

participants with a comprehensive introduction and understanding

of basic fi nancial skills such as:

• Financial planning – long-term and short-term

• Understanding a budget

• Debt management and avoiding over-indebtedness

• The benefi ts of saving

• How to provide for retirement

• Understanding the world of banking.

This certifi cate course is offered via Unisa’s distance learning

programme and participants are required to complete assignments

and a fi nal assessment before being issued with a Certifi cate in

Financial Skills. This course has been accredited on an NQF

level 5 and earns 12 SAQA credits.

In 2007 Capitec Bank also launched three shorter courses

based on the Unisa course. These shorter courses are presented

free of charge to employers, schools and community groups.

The three shorter courses are supported with course handouts

and a DVD that illustrates the practical implications of fi nancial

skills. To date we have presented a signifi cant number of courses

all over the country with positive feedback. We have extended

our fi nancial skills drive to the mass media and in 2007 we ran

four separate fi nancial skills programmes in publications and two

three-month series on community radio stations.

Although Capitec Bank has received positive feedback via

informal research based on audience participation, we would like

to formally review the impact of our fi nancial literacy programme.

Having run this programme since 2005, we should now have

suffi cient data on which to base formal research. Therefore, in

2008, we will embark on research with participants of both

the Financial Skills Course (Unisa Certifi cate Course) and

the shorter courses to ascertain whether our objective of

empowering participants with basic fi nancial skills has been

successful. Capitec Bank will report on these fi ndings.

Naval Junior Leadership Programme

In 2006 Capitec Bank entered into a partnership with the SA Naval

College based in Gordon’s Bay in the Western Cape to pilot a

Financial Skills module as part of the Navy’s Junior Leadership

Programme for Schools. The Junior Leadership Programme

involves ten Grade 12 learners from eight secondary schools

in the Helderberg basin. The aim of this project is to equip learners

with leadership and management skills, as well as life skills

Corporate Social Investment Benefiting our communities

The main focus of our corporate social investment strategy is

fi nancial education and as such, donations made in 2007

have been subject to the fi nancial education theme. Institutions

involved in education, job creation and community upliftment

were favoured when allocating fi nancial support. However, it is

the Capitec Bank offer that should be considered for its value

to the predominantly previously disadvantaged communities.

Access to banking and fi nance provides the community with

upliftment and improved economic conditions which may

contribute to poverty relief. The future of our country is arguably

tied to the sustainable development of these communities through

the implementation of community programmes and initiatives by

corporates such as Capitec Bank. Our business objectives include

achieving sustainable development within these communities by:

• Increasing access to banking and fi nancing options by

growing our footprint and diversifying our product offer.

• Extending our retail partnerships to offer access to banking

beyond our trading hours.

• Reducing our interest rates to make access to credit

economically feasible for our clients.

• Continuing to offer a real return on savings balances with

an attractive savings interest rate.

Our intention is to make a sustainable difference to the lives of

South Africans within our chosen market through corporate

social investment initiatives aligned with our core business. Our

corporate social investment strategy is therefore focused on

fi nancial literacy and community upliftment. In 2007 Capitec

initiated a number of successful programmes that support these

focus areas. We partnered with more educational institutions

and have built on past successes to ensure sustainability of

previous initiatives.

Financial education

Financial literacy programme

As a retail bank we understand the value of fi nancial literacy.

Capitec launched its fi nancial literacy programme in 2005 as

one of the key focus areas of our corporate social investment

strategy. Partnering with Unisa, we developed two fi nancial

literacy courses. One is a short course in fi nancial skills offered



4 7

to enhance their performance as leaders at their schools and to

bring about social upliftment in the broader community. This

programme also promotes interaction between different schools

and cultures. The following leadership skills were covered:

Transformational Leadership: Styles; Problem-solving Using

Intellectual Stimulation; Creating a Value and Belief System (vision

/ mission); Creating an Organisational Culture.

Management: Brainstorming Techniques; SWOT Analysis;

Organising, Planning, Controlling and Communication.

Life Skills: Confl ict / Stress Management; Peer Pressure; Abuse,

Drug and HIV/Aids awareness.

Financial Skills: Financial Planning and Budgeting; Financing;

Debt Management.

The integration of fi nancial skills as part of the Junior Leadership

Programme made sense as Capitec Bank understands the value

of educating the youth on money management. We believe

that fi nancial literacy programmes partnered with leadership skills

programmes are crucial for personal empowerment.

Capitec Bank was involved in the Naval Junior Leadership

Programme for the second time in 2007. With the Bank’s fi nancial

assistance the Navy was able to invite 40 additional learners

from four additional schools, bringing the total number of

learners attending the Junior Leadership Programme to 120. The

response from teachers, parents and learners has been extremely

positive. Many learners commented positively on Capitec Bank’s

Financial Skills module and made special mention of the practical

content and interactive presentation style. They said it offered real

value in terms of their personal development.

Capitec Bank was also the main contributor to the Naval College

Open Day in 2007. This community day, which focuses on

naval activities and careers, has become a highlight on the

local calendar. After assessing our involvement in both initiatives,

Capitec Bank has decided to strengthen our support for the Naval

Junior Leadership Programme in 2008.

Support for non-profi t organisations (NPOs)

Through its CSI programme, Capitec Bank supports many

non-profi t organisations focused on education or community

upliftment. The following organisations, among others, have

benefi ted from a long-term relationship with Capitec Bank:

• Carel du Toit Centre for Hearing Impaired Children

• Paul Roos Academy

• JL Zwane Church

• World Knowledge Olympiad

• Stellenbosch University Legal Aid Clinic

• Khayamandi Cycling Project.

Employee involvement in CSI projects

Casual Day

Each year Capitec Bank goes casual in the name of charity. Our

employees dress up according to the annual Casual Day theme

and enter the C.Inside Casual Day Competition in a drive to

raise funds for people with disabilities. This initiative is very

well supported and our executive team join in to raise awareness

and funds for people with physical or mental disabilities.

HIV/Aids Employee Awareness

Living with HIV/Aids

International Aids Awareness Day is observed on 1 December.

Capitec Bank’s policy on HIV/Aids makes it clear that we do not

discriminate against employees or people living with HIV/Aids.

Mamello Motsau is one of our employees who is HIV-positive.

She has embraced life and uses her HIV status to educate

people about the prevention and treatment of HIV/Aids. She

is passionate about making a difference as Capitec Bank’s culture

of respect and honouring diversity has made it possible for her to

start spreading her message at her place of work without fear of

being victimised.

Environmental responsibility

Capitec Bank believes in the sustainable and environmentally

friendly use of resources. That is why we acknowledge our

responsibility towards conducting business in an environmentally

friendly manner. To do this the Bank fosters a culture of

environmental stewardship amongst its employees. This will

be achieved through awareness programmes and guiding policies,

procedures and standards.

Using technology to reduce paper usage

To reduce the amount of paper used in our offi ces, the Bank is

promoting and implementing effi cient technology and practices

such as the following:

• Sending out electronic payslips to employees

• Distributing training material via its e-learning platform

(E-village)



• Electronic agreement management

• Streamlined, technology-assisted application processes for

new banking products

• Tracking time electronically instead of using printed

timesheets

• Distributing policies and procedures only in electronic format

• Using printers, copiers and offi ce equipment that can handle

double-sided and multi-page printing or copying.

Minimising travel costs and pollution

Mindful of transport-related pollution and travel costs, Capitec

Bank encourages its employees to use public transport or

car-pooling when commuting to and from work. That is one

of the reasons why the Bank’s branches are located close to

public transport routes. The Bank’s longer hours and branch

locations also help to reduce the amount of travel that clients

have to do in order to access the Bank’s services.

Virtualisation – which removes the Bank’s dependency on

physical resources – includes conference calls, the electronic

storage of documents and web-based and electronic

transactions. This reduces, among others, travel expenses,

pollution, and the need for costly over-the-counter banking

services.

Environmentally friendly design and

management

Where available, new offi ces and branches are fi tted with energy-

saving devices such as:

• Energy-effi cient light fi ttings and globes

• Centrally controlled air-conditioners

• Air curtains to improve the effi ciency of air-conditioners

• Outsourced cleaning services that only use eco-friendly

products

• The effi cient use of technology to minimise the need for back-

offi ce functions. This allows the Bank to reduce fl oor space, air-

conditioning, lighting and other energy-consuming functions.

The Financial Sector CharterAs a subscriber to both the Financial Sector Charter (FSC) and

the Codes of Good Practice, Capitec is committed to promoting

empowerment through all its business practices. A range of

empowerment initiatives are aimed at addressing imbalances.

The Group has reported positive outcomes in most areas and

in particular in its corporate social investment initiatives. The

activities embarked on in 2007 have been very successful.

BEE Scorecard

Capitec Bank, the banking subsidiary of the Group, has been rated

for Black Economic Empowerment purposes in terms of both the

Financial Sector Charter scorecard as well as the Codes of Good

Practice issued under Section 9(1) of the Broad Based Black

Economic Empowerment Act 52 of 2003.

Under the Financial Sector Charter a score of 41.56%, equal to

a C-rating was achieved. Under the Codes of Good Practice, the

score is 55.06%. This is equal to a BEE procurement recognition

level of 80%.

Capitec Bank Limited will continue to be scored in terms of both

ratings until such time as the Financial Sector Charter has been

aligned with the Codes and has been gazetted in terms of the

Broad Based Black Economic Empowerment Act, thus obtaining

equal status to that of the Codes. Alternatively, should the

Financial Sector Charter fall away, the score in terms of the Codes

will prevail.

Civil societiesCapitec and its subsidiaries are members of:

The Banking Association of South Africa

Hellopeter.com

MasterCard Worldwide

National Business Initiative

National Credit Regulator

The Ombudsman for Banking Services

Payments Association of South Africa

South African Banking Risk Information Centre

South African Fraud Prevention Services

South Africa Market Research Association

Unilever Institute of Strategic Marketing

Visa International Service Association

Capitec and its subsidiaries are regulated by

the following institutions:

Financial Services Board

JSE Limited

National Credit Regulator

Payments Association of South Africa

South African Reserve Bank

Annual Financial Statements 2008

50 Statement of Responsibility by the Board of Directors

50 Certifi cate by the Company Secretary

51 Independent Auditors’ Report

52 Directors’ Report

57 Balance Sheets

58 Income Statements

59 Statements of Changes in Shareholders’ Equity

61 Cash Flow Statements

62 Notes to the Annual Financial Statements

50 Statement of Responsibility by the Board of Dire

50 Certifi cate by the Company Secretary

51 Independent Auditors’ Report

52 Directors’ Report

57 Balance Sheets

58 Income Statements

59 Statements of Changes in Shareholders’ Equity

61 Cash Flow Statements

62 Notes to the Annual Financial Statements

ectors

y


Statement of Responsibility by the Board of Directors

Capitec Bank Holdings Limited and its subsidiaries

The directors are responsible for the preparation, integrity and fair presentation of the fi nancial statements of Capitec Bank Holdings Limited

and its subsidiaries. The fi nancial statements presented on page 52 to 100 have been prepared in accordance with International Financial

Reporting Standards (IFRS), and include amounts based on judgements and estimates made by management.

The directors consider that in preparing the fi nancial statements they have used the most appropriate accounting policies, consistently

applied and supported by reasonable and prudent judgements and estimates and that all Statements of IFRS that they consider to be

applicable have been followed. The directors are satisfi ed that the information contained in the fi nancial statements fairly presents the results

of operations for the year and the fi nancial position of the group and company at year-end. The directors also prepared the other information

included in the annual report and are responsible for both its accuracy and consistency with the fi nancial statements.

The directors have the responsibility for ensuring that accounting records are kept. The accounting records should disclose, with reasonable

accuracy, the fi nancial position of the companies to enable the directors to ensure that the fi nancial statements comply with relevant

legislation.

Capitec Bank Holdings Limited and its subsidiaries operated in a well-established control environment, which is documented and regularly

reviewed. This incorporates risk management and internal control procedures which are designed to provide reasonable, but not absolute,

assurance that assets are safeguarded and that the risks facing the business are being controlled.

The going concern basis has been adopted in preparing the fi nancial statements. The directors have no reason to believe that the Group or

any company within the Group will not be going concerns in the foreseeable future, based on forecasts and available cash resources. These

fi nancial statements support the viability of the company and the Group.

The Code of Corporate Practices and Conduct has been adhered to, as noted in the corporate governance and risk management review.

The Group’s external auditors, PricewaterhouseCoopers Incorporated, audited the fi nancial statements and their report is presented on

page 51.

The fi nancial statements were approved by the Board of Directors on 31 March 2008, and are signed on its behalf by:

Michiel le Roux Riaan Stassen

Chairman Chief Executive Offi cer

Certificate by the Company Secretary

I hereby certify, in terms of section 268G of the Companies Act, No. 61 of 1973, that to the best of my knowledge, for the year ended 29

February 2008, the company has lodged with the Registrar of Companies all such returns as are required of a public company in terms of

this Act and that all such returns are true, correct and up to date.

Christian van Schalkwyk

Stellenbosch

01 April 2008


Independent Auditors’ Report

To the Members of Capitec Bank Holdings Limited

We have audited the annual fi nancial statements and the group annual fi nancial statements of Capitec Bank Holdings Limited, which

comprise the directors’ report, the balance sheet and the consolidated balance sheet as at 29 February 2008, the income statement and

the consolidated income statement, the statement of changes in equity and the consolidated statement of changes in equity, the cash fl ow

statement and the consolidated cash fl ow statement for the year then ended, and a summary of signifi cant accounting policies and other

explanatory notes, as set out on pages 52 to 100.

Directors’ Responsibility for the Financial StatementsThe company’s directors are responsible for the preparation and fair presentation of these fi nancial statements in accordance with

International Financial Reporting Standards, and in the manner required by the Companies Act of South Africa. This responsibility includes:

designing, implementing and maintaining internal control relevant to the preparation and fair presentation of fi nancial statements that are free

from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting

estimates that are reasonable in the circumstances.

Auditors’ ResponsibilityOur responsibility is to express an opinion on these fi nancial statements based on our audit. We conducted our audit in accordance with

International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to

obtain reasonable assurance whether the fi nancial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the fi nancial statements. The

procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the fi nancial

statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s

preparation and fair presentation of the fi nancial statements in order to design audit procedures that are appropriate in the circumstances,

but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the

appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating

the overall presentation of the fi nancial statements.

We believe that the audit evidence we have obtained is suffi cient and appropriate to provide a basis for our audit opinion.

OpinionIn our opinion, the fi nancial statements present fairly, in all material respects, the fi nancial position of the company and of the Group as of

29 February 2008, and their fi nancial performance and their cash fl ows for the year then ended in accordance with International Financial

Reporting Standards, and in the manner required by the Companies Act of South Africa.

PricewaterhouseCoopers Inc

Director: HD Nel

Registered Auditor

Cape Town

01 April 2008


Directors’ Report

The directors present their annual report, which forms part of the audited fi nancial statements of the company, for the year ended

29 February 2008.

1. NATURE OF BUSINESS

The main business of the company is that of a bank controlling company as envisaged in the Banks Act, 1990. The company’s

subsidiaries are involved in retail banking and the wholesale distribution of consumer goods.

2. REVIEW OF OPERATIONS

The operating results and the state of affairs of the company and the group are fully set out in the attached balance sheets, income

statements, statements of changes in equity, cash fl ow statements and notes thereto. The group’s earnings attributable to shareholders

amounted to R229.1m (2007:R166.9m).

3. FINANCIAL RESULTS AND DIVIDENDS

The fi nancial results of the company and the group are set out in the attached fi nancial statements.

Dividends

A ordinary dividend of 75.0 cents per share was declared by the directors on 01 April 2008 (2007: 60.0 cents). No accrual was made

for this dividend, which is in line with accounting practice.

A preference dividend of 527.77 cents per share (2007: 452.26 cents) was declared on 29 February 2008 (2007: 28 February 2007).

The preference dividend of R8 888 760 was paid on 25 March 2008 (2007: 26 March 2007) and is included as a distribution to

preference shareholders in the current year’s statement of changes in equity.

An ordinary dividend of 60 cents per share relating to the previous fi nancial year was declared on 28 March 2007 and paid on 18 June

2007. An interim ordinary dividend of 25 cents per share was declared on 27 September 2007 and paid on 3 December 2007. The

total ordinary dividend of R69 639 150 (2007: R46 753 468) was settled in cash and is included as a distribution to equity holders in

the current fi nancial year’s statement of changes in equity.

An interim preference share dividend of 482.26 cents per share was declared on 31 August 2007 and paid on 25 September 2007. The

interim preference dividend of R8 122 276 was settled in cash and is included as a distribution to equity holders in the current fi nancial

year’s statement of changes in equity.

4. SHARE CAPITAL

There were no changes in share capital for the current year. During the prior fi nancial year, 10 000 000 ordinary shares with a par value of

R0.01 per share were issued to a BEE consortium at a premium of R29.99 per share (market value at the time). There was also an issue of

1 684 211 non-redeemable, non-cumulative, non-participating preference shares with a par value of R0.01 per share at a premium of R94.99

per share.

Included within the statement of changes in equity as a utilisation against share premium relating to share issue expenses for the

previous year was an amount of R502 000 relating to ordinary shares issued, and an amount of R5 394 000 relating to non-redeemable,

non-cumulative, non-participating preference shares issued.

Settlement of share options

The group settled 1 769 744 options (2007: 713 056 options) relating to the existing share incentive scheme.

5. DIRECTORS AND SECRETARY

Information relating to the directors and secretary of the company is presented on pages 53 to 56 of the fi nancial statements and in the

annual report.

6. GROUP DETAILS

The Group’s place of domicile and country of incorporation is the Republic of South Africa and has a primary listing on the Johannesburg

Stock Exchange (JSE Limited).

Registered offi ce : 10 Quantum Road

Techno Park

Stellenbosch

7600


Number of ordinary shares held

Direct Indirect Direct Indirect Shares %

AP du Plessis * - 900 000 - - 900 000 1.10

MS du P le Roux (Chairman) - - - 12 443 402 12 443 402 15.19

KA Hedderwick(1) - - - - - 0.00

TD Mahloele(2) - - - 1 592 500 1 592 500 1.94

MC Mehl 106 713 - - - 106 713 0.13

NS Mjoli-Mncube 100 000 - - - 100 000 0.12

PJ Mouton(3) - - - - - 0.00

CA Otto 967 - - 459 539 460 506 0.56

JG Solms 33 779 - - - 33 779 0.04

R Stassen * 200 000 - - 2 050 000 2 250 000 2.75

JP van der Merwe(4) - - - - - 0.00

441 459 900 000 - 16 545 441 17 886 900 21.83

Direct Indirect Direct Indirect Shares %

AP du Plessis * - 1 001 223 - - 1 001 223 1.22

MS du P le Roux - - - 12 292 244 12 292 244 15.00

MC Mehl 110 000 - - - 110 000 0.13

NS Mjoli-Mncube 100 000 - - - 100 000 0.12

JF Mouton (Chairman)(5) 500 697 - - 7 091 839 7 592 536 9.27

CA Otto 967 - - 453 760 454 727 0.56

JG Solms 33 779 - - 18 183 51 962 0.06

R Stassen * 100 000 - - 2 397 229 2 497 229 3.05

J van Z Smit(6) 139 647 33 783 - 30 707 204 137 0.25

985 090 1 035 006 - 22 283 962 24 304 058 29.66

* Executive (1) Appointed on 10/12/2007 (2) Appointed on 10/04/2007 (3) Appointed on 05/10/2007 (4) Appointed on 27/09/2007 (5) Resigned on 05/10/2007 (6) Resigned on 27/09/2007

2008 Benefi cial Non-benefi cial Total

2007 Benefi cial Non-benefi cial Total

Directors’ Report

7. INTERESTS OF THE DIRECTORS IN SHARE CAPITAL AND CONTRACTS

7.1 At year end, the directors, in aggregate, were directly or indirectly, benefi cially or non-benefi cially, interested in 17 886 900

(2007: 24 304 058) Capitec Bank Holdings Limited shares, equivalent to 21.83%, (2007: 29.66%) of the issued share capital of Capitec

Bank Holdings Limited. The individual interests of the directors were as follows:


Directors’ Report

7.2 At year end, the directors were participants in the Capitec Bank Holdings Limited share incentive scheme in respect of 1 053 500

(2007:1 450 818 ) Capitec Bank Holdings Limited share options as follows:

No options were exercised in the prior fi nancial year by the executive directors after it was decided to allow the early exercise of options

matured in the 2006/07 year to the extent that there were shares available in the Share Incentive Trust on 20 February 2006.

articipants in the Capitec Bank Holddings Limited share incentive scheme in resspect of 1 053 500 7..2 At yyear end, the directors were pa

Holdings Limited share options as ffollows: (200707:1 450 818 ) Capitec Bank H

prior fi nancial year by the executivee directors after it was decided to allallow ow the early exercise of optionsNNo optionons were exercised in the

e extent that there were shares avaailable in the Share Incentive Trust on 20 Feebruary 2006. mmatured in the 2006/07 year to the

(Options exercised)/ Closing Options granted balance

Strike Number Number Market Number

Maturity Issue price of share of share price Exercise of share

date date R options options R date options

AP du Plessis

(indirect benefi cial) 29 Apr 07 29 Apr 04 5.73 25 000 (25 000) 40.00 7 May 07 -

29 Apr 08 29 Apr 04 5.73 25 000 - 25 000

16 Jul 07 17 Jul 00 1.42 98 777 (98 777) 42.50 25 Oct 07 -

29 Apr 09 29 Apr 04 5.73 25 000 - 25 000

29 Apr 10 29 Apr 04 5.73 25 000 - 25 000

(direct benefi cial) 20 May 08 20 May 05 14.05 17 500 - 17 500

12 Apr 09 12 Apr 06 30.73 13 125 - 13 125

20 May 09 20 May 05 14.05 17 500 - 17 500

12 Apr 10 12 Apr 06 30.73 13 125 - 13 125

26 Apr 10 26 Apr 07 35.82 - 19 000 19 000

20 May 10 20 May 05 14.05 17 500 - 17 500

12 Apr 11 12 Apr 06 30.73 13 125 - 13 125

26 Apr 11 26 Apr 07 35.82 - 19 000 19 000

20 May 11 20 May 05 14.05 17 500 - 17 500

12 Apr 12 12 Apr 06 30.73 13 125 - 13 125

26 Apr 12 26 Apr 07 35.82 - 19 000 19 000

26 Apr 13 26 Apr 07 35.82 - 19 000 19 000

321 277 (47 777) 273 500

R Stassen

(indirect benefi cial) 16 Jul 07 17 Jul 00 1.42 249 541 (249 541) 46.00 1 Nov 07 -

(direct benefi cial) 29 Apr 07 29 Apr 04 5.73 100 000 (100 000) 34.85 2 Aug 07 -

29 Apr 08 29 Apr 04 5.73 100 000 - 100 000

20 May 08 20 May 05 14.05 70 000 - 70 000

12 Apr 09 12 Apr 06 30.73 50 000 - 50 000

29 Apr 09 29 Apr 04 5 73 100 000 - 100 000

20 May 09 20 May 05 14.05 70 000 - 70 000

12 Apr 10 12 Apr 06 30.73 50 000 - 50 000

29 Apr 10 29 Apr 04 5.73 100 000 - 100 000

20 May 10 20 May 05 14.05 70 000 - 70 000

12 Apr 11 12 Apr 06 30.73 50 000 - 50 000

20 May 11 20 May 05 14.05 70 000 - 70 000

12 Apr 12 12 Apr 06 30.73 50 000 - 50 000

-

1 129 541 (349 541) 780 000

Total 1 450 818 (397 318) 1 053 500

Directors

Openingbalance

2008


Directors’ Report

7.3 At year-end, the directors, in aggregate, were indirectly non-benefi cially interested in 40 899 (2007: 70 703) Capitec Bank Holdings

Limited non-redeemable, non-cumulative, non-participating preference shares, equivalent to 2.43% (2007: 4.20%) of the issued

preference share capital of Capitec Bank Holdings Limited. The individual interest of the directors were as follows:

Non-benefi cial Indirect Number of shares % Number of shares %

JG Solms 19 899 1.18% 44 440 2.64%

R Stassen 21 000 1.25% 21 000 1.25%

J van Z Smit(1) 5 263 0.31%

40 899 2.43% 70 703 4.20%

(1) Resigned on 27/09/2007

2008 2007


Directors’ Report

7.4 The directors’ remuneration in respect of the fi nancial year ended 29 February 2008 was as follows:

spect of the fi nancial year ended 299 February 2008 was as follows: 7.44 The ddirectors’ remuneration in res

Salaries Fringe benefi ts Bonuses Fees Total

R’000 R’000 R’000 R’000 R’000

Executive

AP du Plessis 2 285 153 477 - 2 915

R Stassen 2 280 249 2 431 - 4 960

Non-executive

MS du P le Roux (Chairman) - - - 563 563

KA Hedderwick - - - 17 17

TD Mahloele - - - 68 68

MC Mehl - - - 150 150

NS Mjoli-Mncube - - - 100 100

JF Mouton - - - 88 88

PJ Mouton - - - 30 30

CA Otto - - - 175 175

JG Solms - - - 150 150

JP van der Merwe - - - 53 53

J van Z Smit - - - 86 86

4 565 402 2 908 1 480 9 355

The total share option expense relating to directors amounts to R1 527 855 (2007: R1 025 899).

Salaries Fringe benefi ts Bonuses Fees Total

R’000 R’000 R’000 R’000 R’000

Executive

AP du Plessis 1 462 148 229 - 1 839

R Stassen 2 328 248 1 950 - 4 526

Non-executive

MS du P le Roux (Chairman) - - - 137 137

D Lockey - - - 47 47

MC Mehl - - - 97 97

NS Mjoli-Mncube - - - 95 95

JF Mouton - - - 500 500

CA Otto - - - 149 149

JG Solms - - - 116 116

J van Z Smit - - - 122 122

3 790 396 2 179 1 263 7 628

2008

2007

8. INVESTMENTS IN SUBSIDIARIES

Information relating to the company’s fi nancial interest in its subsidiaries is set out in Note 10 to the fi nancial statements.

9. MATERIAL EVENTS AFTER YEAR-END

No event, which is material to the fi nancial affairs of the company, has occurred between the balance sheet date and the date of

approval of the fi nancial statements.


R’000 R’000 R’000 R’000

Assets

Cash and cash equivalents 4 617 901 1 043 746 - -

Investments at fair value through profi t or loss 5 14 424 111 933 - -

Loans and advances to clients 6 2 019 200 803 260 - -

Inventory 7 17 741 10 928 - -

Other receivables 8 19 347 9 685 - -

Group loans receivable 9 - - 8 843 7 637

Investment in subsidiaries 10 - - 821 127 821 127

Property and equipment 11 196 173 155 640 - -

Intangible assets 12 37 619 42 604 - -

Deferred income tax assets 13 13 967 13 846 - -

Total assets 2 936 372 2 191 642 829 970 828 764

Liabilities

Deposits at amortised cost 14 1 475 696 842 172 - -

Deposits at fair value through profi t or loss 15 52 425 54 382 - -

Trade and other payables 16 143 368 94 648 8 909 7 703

Current income tax liabilities 47 456 79 133 - -

Provisions 17 - 3 850 - -

Group loans payable 18 - - 4 247 4 247

Total liabilities 1 718 945 1 074 185 13 156 11 950

Equity

Capital and reserves

Ordinary share capital and premium 19 647 363 647 363 647 363 647 363

Non-distributable reserves 20 - 2 439 - -

Retained earnings 415 458 313 049 14 845 14 845

Share capital and reserves attributable to ordinary shareholders 1 062 821 962 851 662 208 662 208

Non-redeemable, non-cumulative, non-participating

preference share capital and premium 19 154 606 154 606 154 606 154 606

Total equity 1 217 427 1 117 457 816 814 816 814

Total equity and liabilities 2 936 372 2 191 642 829 970 828 764

2008 2007 2008 2007 Notes

Group Company

Balance Sheetsas at 29 February 2008


Income Statementsfor the year ended 29 February 2008

R’000 R’000 R’000 R’000

Interest income 21 740 063 967 528 - -

Interest expense 21 (101 449) (69 836) - -

Net interest income 638 614 897 692 - -

Net fee income 653 400 111 557 - -

Loan fee income 574 584 76 943 - -

Transaction fee income 168 361 93 671 - -

Transaction fee expense (89 545) (59 057) - -

Dividend income 22 15 392 1 469 86 650 54 450

Net impairment charge on loans and advances 23 (230 879) (161 271) - -

Net movement in fi nancial instruments held at fair value

through profi t or loss 24 7 818 (857) - -

Non-banking gross profi t 10 938 8 025 - -

Sales 159 122 134 888 - -

Cost of sales (148 184) (126 863) - -

Other income 8 75 444 643

Income from operations 1 095 291 856 690 87 094 55 093

Banking operating expenses (762 540) (606 705) (444) (710)

Non-banking operating expenses (8 405) (6 808) - -

Operating profi t before tax 25 324 346 243 177 86 650 54 383

Tax expense 26 (95 281) (76 253) - -

Profi t for the year attributable to equity holders 229 065 166 924 86 650 54 383

Earnings per share attributable to ordinary shareholders (cents)

Basic 27 258.8 220.9

Diluted 27 250.3 209.5

Proposed fi nal ordinary dividend per share (cents) 28 75.0 60.0

Interim ordinary dividend per share (cents) 29 25.0 20.0

2008 2007 2008 2007 Notes

Group Company


Ordinary Preference Shares Non-

share share held by distributable Retained

capital and capital and the Group reserves earnings Total

premium premium

R’000 R’000 R’000 R’000 R’000 R’000

Group Balance at 1 March 2006 347 865 - - 710 215 241 563 816

Shares issued during the year 300 000 160 000 - - - 460 000

Share issue expenses (502) (5 394) - - (64) (5 960)

Net profi t for the year - 7 617 - - 159 307 166 924

Ordinary dividend - - - - (46 753) (46 753)

Preference dividend - (7 617) - - - (7 617)

Share-based staff costs - - - - 4 005 4 005

Shares acquired for employee share options at cost - - (23 441) - - (23 441)

Realised loss on settlement of employee share options - - 23 441 - (22 249) 1 192

Tax effect on settlement of share options - - - - 5 291 5 291

Transfer to statutory provision reserve - - - 1 729 (1 729) -

Balance at 28 February 2007 647 363 154 606 - 2 439 313 049 1 117 457

Net profi t for the year - 17 011 - - 212 054 229 065

Ordinary dividend - - - - (69 639) (69 639)

Preference dividend - (17 011) - - - (17 011)

Share-based staff costs - - - - 7 009 7 009

Transfer from statutory provision reserve - - - (2 439) 2 439 -

Shares acquired for employee share options at cost - - (71 469) - - (71 469)

Realised loss on settlement of employee share options - - 71 469 - (66 886) 4 583

Tax effect on settlement of share options - - - - 17 432 17 432

Balance at 29 February 2008 647 363 154 606 - - 415 458 1 217 427

Notes 19 19 20

Statements of Changes in Shareholders’ Equityfor the year ended 29 February 2008


Statements of Changes in Shareholders’ Equityfor the year ended 29 February 2008

Ordinary Preference

share share Retained

capital premium earnings Total

R’000 R’000 R’000 R’000

CompanyBalance at 1 March 2006 347 865 - 14 832 362 697

Shares issued during the year 300 000 160 000 - 460 000

Share issue expenses (502) (5 394) - (5 896)

Net profi t for the year - 7 617 46 766 54 383

Ordinary dividend - - (46 753) (46 753)

Preference dividend - (7 617) - (7 617)

Balance at 28 February 2007 647 363 154 606 14 845 816 814

Net profi t for the year - 17 011 69 639 86 650

Ordinary dividend - - (69 639) (69 639)

Preference dividend - (17 011) - (17 011)

Balance at 29 February 2008 647 363 154 606 14 845 816 814

Notes 19 19


R’000 R’000 R’000 R’000

Cash fl ow from operating activities

Cash fl ow from operations 33 (151 225) 292 041 86 584 54 469

Tax paid 34 (109 647) (21 520) - -

(260 872) 270 521 86 584 54 469

Cash fl ow from investing activities

Investment in property and equipment 11 (100 908) (71 158) - -

Investment in computer software 12 (16 047) (14 799) - -

Increase in investment in subsidiaries - - - (554 104)

Proceeds from disposal of equipment 884 148 - -

(Increase) decrease in loans receivable from group companies - - (1 206) 92 363

Acquisition of investments at fair value through profi t or loss (169 224) (108 361) - -

Disposal of investments at fair value through profi t or loss 272 586 - - -

(12 709) (194 170) (1 206) (461 741)

Cash fl ow from fi nancing activities

Decrease in group loans payable - - - (79)

Dividends paid * 35 (85 378) (46 753) (85 378) (46 753)

Shares issued 36 - 454 104 - 454 104

Shares acquired and options settled 37 (66 886) (22 249) - -

(152 264) 385 102 (85 378) 407 272

Net (decrease) increase in cash and cash equivalents (425 845) 461 453 - -

Cash and cash equivalents at beginning of year 1 043 746 582 293 - -

Cash and cash equivalents at end of year 4 617 901 1 043 746 - -

* Dividends paid have been moved from cash fl ow from operating activities to cash fl ow from fi nancing activities in line with recommended

accounting practice.

2008 2007 2008 2007 Notes

Group Company

Cash Flow Statementsfor the year ended 29 February 2008


1. ACCOUNTING POLICIES

The principal accounting policies applied in the preparation of these consolidated fi nancial statements are set out below. These

policies have been consistently applied to all the years presented, unless otherwise stated. Accounting policies have been consistently

applied through subsidiaries in the Group.

Basis of preparation

The Group’s consolidated fi nancial statements have been prepared in accordance with International Financial Reporting Standards

(IFRS). The consolidated fi nancial statements have been prepared under the historical cost convention, as modifi ed by the revaluation

of fi nancial instruments held at fair value through profi t or loss.

The preparation of fi nancial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also

requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a

higher degree of judgement or complexity, or areas where assumptions and estimates are signifi cant to the consolidated fi nancial

statements are disclosed in Note 2.

1.1 Basis of consolidation

The consolidated fi nancial statements include those of the company, all its subsidiaries, the share incentive trust and the employee

empowerment trust.

Subsidiaries are all entities (including special purpose entities) over which the Group has the power to govern the fi nancial and

operating policies, generally accompanying a shareholding of more than one half of the voting rights, for the benefi t of the Group.

The existence and effect of potential voting rights would be considered when assessing whether the Group controls another entity,

had such rights existed. Subsidiaries are fully consolidated from the date on which control is obtained by the Group. They are de-

consolidated from the date that control ceases.

The Group uses the purchase method of accounting to account for the acquisition of subsidiaries by the Group. The cost of an

acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date

of exchange, plus costs directly attributable to the acquisition. Identifi able assets acquired and liabilities and contingent liabilities

assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any

minority interest. The excess of the cost of acquisition over the fair value of the Group’s share of the identifi able net assets acquired

is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference

is recognised directly in the income statement.

Intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated.

Investments in subsidiaries are accounted for at cost less allowance for impairment. The carrying amounts of these investments are

reviewed annually and written down for impairment where considered necessary.

Transactions and minority interests

The Group applies a policy of treating transactions with minority interests as transactions with parties external to the Group. Disposals

to minority interests result in gains and losses for the Group that are recorded in the income statement. Purchases from minority

interests result in goodwill, being the difference between any consideration paid and the relevant share acquired of the carrying value

of net assets of the subsidiary.

1.2 Cash and cash equivalents

Cash and cash equivalents comprise balances with less than three months’ maturity from the date of acquisition, including: cash

and balances with central banks, treasury bills and other eligible bills, loans and advances to banks, amounts due from other banks,

money market investments and short-term government securities. Cash and cash equivalents are stated at cost which approximates

fair value due to the short-term nature of these instruments.

Notes to the Annual Financial Statementsfor the year ended 29 February 2008


1.3 Financial instruments

1.3.1 The Group categorises its fi nancial assets in the following categories:

The Group recognises fi nancial assets on the balance sheet only once it becomes a party to the contractual terms of the particular

fi nancial instrument.

Financial assets are derecognised when the rights to receive cash fl ows from the fi nancial assets have expired or where the Group

has transferred substantially all risks and rewards of ownership.

Management determines the categorisation of its investments at initial recognition and re-evaluates this categorisation at each

reporting date.

(a) Financial assets at fair value through profi t or loss

This category has two sub-classes: fi nancial assets held for trading, and those designated at fair value through profi t or loss at

inception. A fi nancial asset is categorised as held for trading if acquired principally for the purpose of selling in the short term or if so

designated by management. Derivatives are categorised as held for trading unless they are designated as hedges.

Purchases and sales of fi nancial assets at fair value through profi t or loss are recognised on trade date, being the date on which the

Group commits to purchase or sell the asset.

Gains and losses on fi nancial assets at fair value through profi t or loss are measured as the difference between the proceeds and

year end fair values and the carrying amounts adjusted for dividend income (1.16.4), and are included in the income statement.

(b) Loans and advances

Loans and advances are non-derivative fi nancial assets with fi xed or determinable payments that are not quoted in an active market,

other than: (a) those that the entity intends to sell immediately or in the short term, which are categorised as held for trading, and

those that the entity upon initial recognition designates as at fair value through profi t or loss; (b) those that the entity upon initial

recognition designates as available-for-sale; or (c) those for which the holder may not recover substantially all of its initial investment,

other than because of credit deterioration. They arise when the Group provides money, goods or services directly to a debtor with no

intention of trading the advance. Included within this category are Group loans receivable and other receivables.

Loans and advances are recognised when cash is advanced to the borrowers.

(c) Held-to-maturity investments

The Group currently has no held-to-maturity investments. Held-to-maturity investments are non-derivative fi nancial assets with fi xed

or determinable payments and fi xed maturities that the Group’s management has the positive intention and ability to hold to maturity.

Were the Group to sell other than an insignifi cant amount of held-to-maturity assets, the entire category would be tainted and re-

categorised as available-for-sale.

(d) Available-for-sale fi nancial assets

The Group currently has no available-for-sale fi nancial assets. Available-for-sale fi nancial assets are assets that management intend

to hold on a continuing basis, which may be sold in response to needs for liquidity or changes in interest rates, exchange rates or

equity prices.

Financial assets, other than those held at fair value through profi t or loss, are initially recognised at fair value plus transaction

costs.

Financial assets at fair value through profi t or loss, held-to-maturity investments and available-for-sale fi nancial assets are

subsequently carried at fair value. Loans and advances are carried at amortised cost using the effective interest rate method. Gains

and losses arising from changes in the fair value of fi nancial assets at fair value through profi t or loss are included in the income

statement in the period in which they arise.

The fair values of quoted fi nancial assets in active markets are based on current bid prices.

1.3.2 The Group categorises its fi nancial liabilities in the following categories:

The Group recognises a fi nancial liability once it becomes a party to the contractual terms of the fi nancial instrument. Financial

liabilities, other than those held at fair value through profi t or loss, are recognised initially at fair value, generally being their issue

proceeds net of transaction costs incurred.


A fi nancial liability, or part of a fi nancial liability, is derecognised once the obligation specifi ed in the contract relating to the fi nancial

liability is discharged, cancelled or has expired.

(a) Deposits held at amortised cost

Deposits held at amortised cost are recognised initially at fair value and are subsequently stated at amortised cost using the effective

interest method. Any differences between net proceeds and the redemption value are recognised in the income statement over the

period of the borrowing using the effective yield method.

(b) Deposits held at fair value through profi t or loss

These deposits are fair valued by discounting the value using an appropriate discount rate determined with reference to quoted rates

on market instruments with similar credit characteristics and maturities.

Financial liabilities are designated at fair value through profi t or loss, where required in order to eliminate or reduce measurement

or recognition inconsistencies that would otherwise arise from measuring liabilities on different bases; or if a group of fi nancial

liabilities is managed and its performance evaluated on a fair value basis, in accordance with a documented risk management or

investment strategy, and information about the Group is provided internally on that basis to the Management Committee and Board

of Directors.

Gains and losses arising from changes in the fair value of deposits held at fair value through profi t or loss are included in the income

statement in the period in which they arise.

(c) Other fi nancial liabilities

Included within this class of fi nancial liabilities are trade and other payables, provisions and Group loans payable that will be settled

in cash and cash equivalents. Trade and other payables and Group loans payable are recognised initially at fair value and are

subsequently stated at amortised cost using the effective interest rate method. Refer to Note 1.12 for the accounting policy applied

in measuring provisions.

1.3.3 Offsetting fi nancial instruments

Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right

to set off the recognised amounts and there is an intention to settle on a net basis, or to realise the asset and settle the liability

simultaneously. Deferred loan income reduces the outstanding loans and advances balance on the basis that the revenue will be

received when the underlying loans are repaid.

1.3.4 Derivative fi nancial instruments

Derivative fi nancial instruments are restricted to forward foreign exchange contracts which are initially recognised in the balance

sheet at fair value (including transaction costs) and are subsequently re-measured at their fair value. Fair values are obtained from

quoted market prices. All contracts are carried as assets when fair value is positive and as liabilities when fair value is negative.

Derivatives are held only to cover economic exposure.

The best evidence of the fair value of a derivative at initial recognition is the transaction price (i.e. the fair value of the consideration

given or received) unless the fair value of that instrument is evidenced by comparison with other observable current market

transactions in the same instrument (i.e. without modifi cation or repackaging) or based on a valuation technique whose variables

include only data from observable markets.

1.3.5 Financial guarantee contracts

A fi nancial guarantee contract is a contract that requires the Group (issuer) to make specifi ed payments to reimburse the holder for

a loss it incurs because a specifi ed debtor fails to make payment when due in accordance with the original or modifi ed terms of a

debt instrument.

Financial guarantee liabilities are initially recognised at fair value and then amortised over the life of the fi nancial guarantee.

Subsequent to initial recognition, the fi nancial guarantee liability is measured at the higher of the present value of any expected

payment, when a payment under the guarantee has become probable, and the unamortised premium.


1.4 Impairment of advances

The estimation of allowances for impairments is inherently uncertain and depends on many factors, including general economic

conditions, structural changes within industries, changes in individual customer circumstances and other external factors such as

legal requirements, regulatory specifi cations and governmental policy changes.

Loans and advances are stated net of identifi ed impairments and incurred but unidentifi ed impairments.

Loans and advances are considered impaired if, and only if, there is objective evidence of impairment as a result of events that

occurred after initial asset recognition (known as loss events) and these loss events have an adverse impact on the assets’ estimated

future cash fl ows that can be reliably measured.

Objective evidence that loans and advances may be impaired, includes the following observable data:

(a) A breach of contract, such as a default or delinquency in interest or principal payments. In this regard instalments not paid one

day past due date are considered in breach of contract.

(b) Historical loss experience of groups of fi nancial assets with similar repayment terms.

(c) Data indicating that there is a measurable decrease in the estimated future cash fl ows from a group of fi nancial assets since the

initial recognition of those assets, although the decrease cannot yet be identifi ed with the individual fi nancial assets in the Group

including:

• Adverse changes in the payment status of borrowers in the group; or

• National or local economic conditions that correlate with defaults on the assets in the group.

In determining whether a loss event has occurred, loans and advances are subjected to regular evaluations of the overall client risk

profi le and payments record.

The historical loss experience is adjusted on the basis of observable data to refl ect the effects of current conditions that did not affect

the period on which the historical loss experience is based and to remove the effects of conditions in the historical period that do not

currently exist.

On a collective basis, the Group assesses whether objective evidence of impairment exists for groups of fi nancial assets with similar

repayment terms. If there is objective evidence that an impairment loss on loans and advances has been incurred, the amount of

the loss is measured as the difference between the assets’ carrying amounts and the present value of estimated future cash fl ows

(excluding future credit losses that have not yet been incurred) discounted at the respective fi nancial assets’ original effective interest

rates (the recoverable amount).

1.4.1 Identifi ed impairment

Advances within the Group comprise a large number of small homogenous assets. Statistical techniques are used to calculate

impairment allowances collectively, based on historical default and recovery rates. These statistical analyses use as primary inputs

the extent to which accounts in the portfolio are in arrears and historical loss experience on the eventual losses encountered from

such delinquent portfolios.

These statistics feed discounted cash fl ow models which have been developed for each of the loan products offered by the Group.

The models are updated periodically in order to refl ect appropriate changes in inputs.

Models contain both judgemental and non-judgemental inputs. The extent of judgement utilised in models developed for new loan

products is greater than that for older products given the limited historical experience available for the new products.

In outline, the statistical analyses are performed on a portfolio basis as follows:

• Loans and advances are monitored on a product basis, with each month’s advances being treated as a discrete portfolio, on

which an analysis of the run-off of recoveries, in period buckets, is performed in order to develop a historical base for statistics on

probability of default (PD).

• These derived statistics, based on actual experience, are used in plotting values on a model curve that refl ects the risk profi le of

the portfolio.

• Loans in arrears by more than 90 days are handed over for collection and written off. Recoveries from these loans are regarded

as negligible as collateral is not required for the granting of advances in the current product range.

• Upon write off the accrual of interest income on the original term of the advance is discontinued.


1.4.2 Incurred but unidentifi ed impairment

In addition to the impairment estimated for assets with recognised objective evidence of impairment, an estimate is made for impairments

associated with those assets in the balance sheet that are impaired, but for which objective evidence is not yet available.

• The impairment calculation utilises the results of the statistical analyses referred to above to estimate the proportion of assets

in each portfolio that are likely to display objective evidence of impairment over the emergence period. The emergence period is

defi ned as the experience of the length of time that it takes for objective evidence to become apparent after the asset has become

impaired.

• In considering the occurrence of a loss event over the life of a loan, it is assumed that there is a constant risk of the loss event

occurring at any point in the life of the loan.

• For a portfolio of loans in a particular month most of the provision is recognised in the early stages of the contractual period as

the outstanding loan balances are larger.

The methodology and assumptions used for estimating future cash fl ows are reviewed regularly to reduce differences between loss

estimates and actual loss experience.

All impaired loans and advances are reviewed on a monthly basis and any changes to the amount and timing of the expected future

cash fl ows compared to previous estimates will result in a change to the charges for impairment of loans and advances in the income

statement.

1.4.3 Loan write-offs

Loans (and the related impairment allowance accounts) are normally written off in full for amounts in arrears for more than 90 days.

1.5 Inventory

Inventory is stated at the lower of the cost or net realisable value. Cost is determined using the fi rst-in, fi rst-out (FIFO) method. Net

realisable value is the estimate of the selling price in the ordinary course of business, less selling expenses. Inventory is carried net

of rebates. All inventories comprise fi nished goods.

1.6 Interest-free loans granted

Interest-free Group loans with no fi xed maturities are carried at cost net of impairment.

1.7 Current tax

Income tax payable on profi ts based on the applicable tax law in each jurisdiction, is recognised as an expense in the period in which

profi ts arise. Secondary tax on companies (STC) is calculated in terms of the applicable tax law and disclosed as part of the tax

expense on the income statement.

1.8 Deferred tax

Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets

and liabilities and their carrying amounts for fi nancial reporting purposes. Deferred income tax is determined using tax laws and rates

that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred

income tax asset is realised or the deferred income tax liability is settled.

The principal temporary differences arise from depreciation of property and equipment, revaluation of certain fi nancial assets and

liabilities and tax losses carried forward. Deferred tax assets are raised only to the extent that it is probable that future taxable income

will be available against which the unused tax losses can be utilised.

A deferred tax asset is raised on unutilised secondary tax on companies (STC) credits, to the extent that these will be used in future

years.

1.9 Property and equipment

Land and buildings comprises a warehouse. All property and equipment is stated at historical cost less depreciation. Historical cost

includes expenditure that is directly attributable to the acquisition of the items.


Subsequent costs are included in the assets’ carrying amount or are recognised as a separate asset, as appropriate, only when it is

probable that future economic benefi ts associated with the item will fl ow to the Group and the cost of the item can be measured reliably.

All other repairs and maintenance costs are charged to the income statement during the fi nancial period in which they were incurred.

Land is not depreciated. Depreciation on other assets is calculated using the straight-line method to allocate their cost to their

residual values over their estimated useful lives, as follows:

• Banking application hardware 3 - 5 years

• Automated teller machines 8 years

• Computer equipment 3 - 5 years

• Offi ce equipment 5 - 8 years

• Motor vehicles 5 years

• Buildings 25 years

The assets’ residual values and useful lives are reviewed annually and adjusted, if appropriate.

Gains and losses on disposals are determined by comparing proceeds with carrying amounts. These are included in the income

statement.

1.10 Intangible assets

(a) Goodwill

Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifi able assets of

the acquired subsidiary at the date of acquisition. Goodwill on acquisitions of subsidiaries is included in ‘intangible assets’. Goodwill

is tested annually for impairment and carried at cost less accumulated impairment losses. Gains and losses on the disposal of an

entity include the carrying amount of goodwill relating to the entity sold. Goodwill is allocated to cash-generating units for the purpose

of impairment testing.

(b) Computer software

Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring to use the specifi c

software. Computer software is carried at cost less accumulated amortisation and impairment losses.

Costs associated with developing or maintaining computer software programmes are recognised as an expense as incurred. Costs

that are directly associated with the production of identifi able and unique software products controlled by the Group, and that will

probably generate economic benefi ts exceeding costs beyond one year, are recognised as intangible assets. Direct costs include

software development employee costs and an appropriate portion of relevant overheads.

Amortisation on computer software is calculated using the straight-line method to allocate their cost to their residual values over their

estimated useful lives, as follows:

• Banking application software 6 years

• Server software 3 - 5 years

• Desktop application software 2 - 4 years

The assets’ useful lives are reviewed annually and adjusted where appropriate.

1.11 Impairment of non-fi nancial assets (property and equipment, computer software)

Equipment and other non-fi nancial assets are reviewed for impairment losses whenever events or changes in circumstances indicate

that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the carrying amount of

the asset exceeds its recoverable amount, which is the higher of an asset’s net selling price and value in use. For the purpose of

assessing impairment, assets are grouped at the lowest levels for which there are separately identifi able cash fl ows (cash-generating

units). Non-fi nancial assets other than goodwill that suffered impairment are reviewed for possible reversal of the impairment at each

reporting date.

1.12 Provisions

Provisions for expenses are obligations of the Group for which there is uncertainty as to the timing or amount of the outfl ow of

economic resources. Provisions are recognised when:

• The Group has a present legal or constructive obligation as a result of past events;


• It is probable that an outfl ow of resources embodying economic benefi ts will be required to settle the obligation; and

• A reliable estimate of the amount of the obligation can be made.

Where there are a number of similar obligations, the likelihood that an outfl ow will be required in settlement is determined by

considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outfl ow with respect to any one

item included in the same class of obligations may be small.

Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax

rate that refl ects current market assessments of the time value of money and the risks specifi c to the obligation. The increase in the

provision due to passage of time is recognised as interest expense.

1.13 Share capital

(a) Categories of share capital

Authorised Share Capital consists of

• 100 000 000 ordinary shares (par value R0,01) and

• 100 000 000 non-redeemable, non-cumulative, non-participating preference shares (par value R0.01).

(b) Share issue costs

Incremental costs directly attributable to the issue of new shares or options or to the acquisition of a business are shown in equity

as a deduction, net of tax, from the proceeds.

(c) Dividends declared

Dividends on ordinary shares and preference shares are recognised in equity in the period in which they have been approved by the

Group’s directors. Dividends for the year that are declared after the balance sheet date are dealt with in the directors’ report.

(d) Treasury shares

Where the Company or other members of the Group purchase the Company’s equity share capital, the consideration paid is deducted

from total shareholders’ equity as shares held by the Group until they are cancelled or sold.

(e) Unissued shares

An amount of 10% of the issued ordinary share capital and all unissued non-redeemable, non-cumulative, non-participating

preference shares are under the control of the directors until the next annual general meeting.

1.14 Employee benefi ts

(a) Pension obligations

The Group contributes to a provident fund classifi ed as a defi ned contribution fund.

For defi ned contribution plans, the Group pays fi xed contributions to privately administered provident fund plans on a contractual

basis. The Group has no further payment obligations once the contributions have been paid. The contributions are recognised as

employee benefi t expenses when they are due. Prepaid contributions are recognised as an asset to the extent that a cash refund or

a reduction in the future payments is available.

(b) Share-based compensation

The Group operates an equity-settled, share-based compensation plan. The fair value of the employee services received in exchange

for the grant of the options is recognised as an expense. The total amount to be expensed over the vesting period is determined

by reference to the fair value of the options on grant date, excluding the impact of any non-market vesting conditions (for example,

profi tability and sales growth targets). Non-market vesting conditions are included in assumptions about the number of options that

are expected to become exercisable. At each balance sheet date, the entity revises its estimates of the number of options that are

expected to vest. It recognises the impact of the revision of original estimates, if any, in the income statement, and a corresponding

adjustment to equity over the remaining vesting period.

The Group’s employee empowerment trust operates a cash-settled, share-based compensation plan. The fair value of the liability

incurred for employee services received is recognised as an expense over the vesting period. Until the liability is settled, the Group

remeasures the fair value of the liability at each reporting date and at the date of settlement, with any changes in value recognised

in profi t or loss for the period.


1.15 Foreign currency translation

(a) Functional and presentation currency

Items included in the fi nancial statements of each of the Group’s entities are measured using the currency of the primary economic

environment in which the entity operates (“the functional currency”). The consolidated fi nancial statements are presented in South

African Rands (“Rand”), which is the Group’s functional and presentation currency. The fi nancial statements of all the subsidiaries

are also presented in Rand.

(b) Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the

transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year

end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement.

Translation differences on non-monetary items are reported as part of the fair value gain or loss.

1.16 Revenue recognition

1.16.1 Interest income and expense

Interest income and expense are recognised in the income statement for all instruments measured at amortised cost and at fair value

through profi t and loss using the effective interest rate method.

The effective interest rate method is a method of calculating the amortised cost of a fi nancial asset or a fi nancial liability and of

allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts

estimated future cash payments or receipts through the expected life of the fi nancial instrument or, when appropriate, a shorter

period to the net carrying amount of the fi nancial asset or fi nancial liability. When calculating the effective interest rate, the Group

estimates cash fl ows considering all contractual terms of the fi nancial instrument (for example, prepayment options) but does not

consider future credit losses. The calculation includes all fees and points paid or received between parties to the contract that are

an integral part of the effective interest rate.

Once a fi nancial asset or a group of similar fi nancial assets has been written down as a result of an impairment loss, interest income

is recognised using the rate of interest used to discount the future cash fl ows for the purpose of measuring the impairment loss.

1.16.2 Fee income

Transaction fees are recognised on an accrual basis in the period in which the services are rendered. The portion of loan origination

fees that relates to the creation of a fi nancial asset is amortised over the term of the loan. Transaction and service related loan fee

income is recognised when the services are provided.

1.16.3 Non-banking sales

Non-banking sales represent the net sales value of all products sold to third parties after the deduction of trade discounts. Revenue is

recognised when risks and rewards of ownership have been transferred to the customer. Revenue is recognised net of value added tax.

1.16.4 Dividend income

Dividend income is recognised in the income statement when the entity’s right to receive payment is established. Dividends on listed

preference shares accrue on a day to day basis based on the terms of underlying instruments.

1.17 Segment reporting

A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and

returns that are different from those of other business segments. A geographical segment is engaged in providing products or

services within a particular economic environment that is subject to risks and returns different from those of segments operating in

other economic environments.

1.18 Leases

(a) Where a Group company is the lessee

Leases where a signifi cant portion of the risks and rewards of ownership are retained by the lessor are classifi ed as operating leases.

Payments made under operating leases, net of any incentives received from the lessor, are charged to the income statement on a

straight-line basis over the period of the lease.

When an operating lease is terminated before the lease period has expired, any penalty payment to the lessor is recognised as an

expense in the period in which termination takes place.

(b) Where a Group company is the lessor

Rental from the sub-letting of leased premises is recognised on a straight-line basis over the lease term.


1.19 Standards, interpretations and amendments to published standards applied for the fi rst time during the current

fi nancial year

• Amendments to IAS1 Presentation of Financial Statements – Capital Disclosures (effective from January 2007)

• IFRS 7 Financial Instruments (Disclosures) (effective from January 2007)

• IFRIC 9 Reassessment of embedded derivatives (effective from 1 June 2006)

• IFRIC 10 Interim Financial Reporting and impairment (effective from 1 November 2006)

The implications of these statements have no impact on measurements of assets and liabilities at previous year end. Comparitives

are provided for new disclosures.

• IFRIC8, AC503 and IFRIC11 are compulsory for the current year but were adopted early in the previous year (2007).

1.20 Standards, interpretations and amendments to published standards that are not yet effective

Certain new standards, amendments and interpretations to existing standards have been published that are mandatory for the Group’s

accounting periods beginning on or after 1 March 2008 or later periods but which the Group has not early adopted, as follows:

• IFRS 8 Operating Segments (effective from January 2009)

• IAS 23 Borrowing Costs – Revised (effective from January 2009)

• IAS 1 Presentation of fi nancial statements (effective from January 2009)

• IFRIC 12 Service Concession Arrangements (effective from January 2008)

• IFRIC 13 Customer Loyalty Programmes (effective from July 2008)

• IFRIC 14 IAS 19 – The Limit on a Defi ned Benefi t Asset, Minimum Funding Requirements and their Interaction

(effective from January 2008)

• IFRS 3 Business Combinations Revised (effective July 2009)

• IAS 27 Consolidated and Separate Financial Statements Revised (effective July 2009)

• Amendment to IAS 32 Financial Instruments: presentation regarding puttable instruments (effective July 2009)

Management is in the process of assessing the impact of these amendments and standards on the reported results of the Group

and the company.

2. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS IN APPLYING

ACCOUNTING POLICIES

In conformity with IFRS, the preparation of fi nancial statements for the Group requires management to make estimates and

assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets

and liabilities in the fi nancial statements and accompanying notes. Although these estimates are based on management’s knowledge

of current events and actions that may be undertaken in the future, actual results may ultimately differ from estimates.

The estimates and assumptions that have a signifi cant risk of causing material adjustment to the carrying amounts of assets and

liabilities within the next fi nancial year are discussed below.

Impairment losses on loans and advances

The Group reviews its loan portfolios to assess impairment at least on a monthly basis. In determining whether an impairment loss

should be recorded in the income statement, the Group makes judgements as to whether there is any observable data indicating

that there is a measurable decrease in the estimated future cash fl ows from a portfolio of loans before the decrease can be identifi ed

with an individual loan in that portfolio. This evidence may include observable data indicating that there has been an adverse change

in the payment status of borrowers in a group, or national or local economic conditions that correlate with defaults on assets in the

group. Management uses estimates based on historical loss experience for assets with credit risk characteristics and objective

evidence of impairment similar to those in the portfolio when estimating its future cash fl ows. The methodology and assumptions

used for estimating both the amount and timing of future cash fl ows are reviewed regularly to reduce any differences between loss

estimates and actual loss experience. To the extent that the expected default rates increase or decrease by 5%, the impairment

allowance would be estimated R12 687 000 (2007: R7 055 000) higher or R12 706 000 (2007: R6 939 000) lower.

Property and equipment

Property and equipment are depreciated over their useful lives, taking into account their residual values at the end of their useful

lives. The residual values and useful lives are based on industry knowledge and past experience with similar assets. Refer to Note

1.9 for the accounting policy regarding property and equipment.

Management expense provisions

At year-end, the Group is exposed to various liabilities of uncertain timing or amount. Such liabilities are provided for if a present

obligation has arisen, payment is probable and the amount can be estimated reliably. Management uses its discretion to estimate

the expenditure required to settle the present obligation at the balance sheet date, i.e. the amount the Group would rationally pay to

settle the obligation or transfer it to a third party.


2008


3. SEGMENTAL REPORTING

Primary reporting format – business segments

During the year the group conducted operations in two main business areas - banking and wholesale distribution of consumer goods.

The banking segment incorporates retail banking services including savings, deposits, debit cards and consumer loans.

Wholesale distibution incorporates the wholesale distribution of fast moving consumer goods.

Transactions between the business segments are on normal commercial terms and conditions.

Adjustment for

Wholesale intra-segment

Banking distribution items Total

Year ended 29 February 2008 R’000 R’000 R’000 R’000

Revenues 1 499 115 159 122 (707) 1 657 530

Segment earnings before tax 322 660 1 686 - 324 346

Segment earnings after tax 227 379 1 686 - 229 065

Segment headline earnings attributable to ordinary shareholders 210 513 1 686 - 212 199

Segment assets 2 918 800 22 844 (5 272) 2 936 372

Segment liabilities 1 699 129 25 088 (5 272) 1 718 945

Capital expenditure 116 569 386 - 116 955

Depreciation 59 163 124 - 59 287

Amortisation 21 032 - - 21 032

Year ended 28 February 2007

Revenues 1 140 519 134 888 (833) 1 274 574

Segment earnings before tax 242 918 259 - 243 177

Segment earnings after tax 166 665 259 - 166 924

Segment headline earnings attributable to ordinary shareholders 160 133 259 - 160 392

Segment assets 2 182 304 16 934 (7 596) 2 191 642

Segment liabilities 1 064 195 17 586 (7 596) 1 074 185

Capital expenditure 85 856 101 - 85 957

Depreciation 47 712 86 - 47 798

Amortisation 19 883 - - 19 883

Secondary reporting format

No secondary geographical segment information is disclosed as all the company’s business for the years ended 29 February 2008 and

28 February 2007 was conducted within the Republic of South Africa.

2007


R’000 R’000 R’000 R’000

2008 2007 2008 2007

Group Company

4. CASH AND CASH EQUIVALENTS

Cash on hand 263 607 213 079 - -

Bank balances 215 045 658 073 - -

Money market placements - 45 574 - -

Central Bank balances:

Debentures 35 440 80 203 - -

Treasury bills 69 309 29 973 - -

Mandatory reserve deposits with Central Bank 34 500 16 844 - -

617 901 1 043 746 - -

Maximum exposure to credit risk 617 901 1 043 746 - -

Mandatory reserve deposits are not available for use in the

Group’s day-to-day operations. Cash on hand and mandatory

reserve deposits are non-interest bearing.

Debentures are short-term fi xed interest securities issued by the

South African Reserve Bank.

5. INVESTMENTS AT FAIR VALUE THROUGH

PROFIT OR LOSS

Listed preference shares

Balance at the beginning of the year 96 958 7 149 - -

Amortised cost 99 925 6 688 - -

Cumulative fair value adjustment - other market risk (2 967) 461 - -

Additions at cost 166 124 93 237 - -

Disposals at cost (266 049) - - -

Fair value adjustment 2 967 (3 428) - -

Interest rate risk - - - -

Credit risk - - - -

Other market risk (8 369) (3 596) - -

Realised on disposals 11 336 168 - -

Balance at the end of the year - 96 958 - -

Amortised cost - 99 925 - -

Cumulative fair value adjustment - other market risk - (2 967) - -

Unlisted investments at fair value

Balance at the beginning of the year - - - -

Amortised cost - - - -

Cumulative fair value adjustment - other market risk - - - -

Additions at cost 3 100 - - -

Fair value adjustment 11 324 - - -


Credit risk - - - -

Exchange rate risk 1 860 - - -

Other market risk 12 362 - - -

Realised on disposals (2 898) - - -




R’000 R’000 R’000 R’000

2008 2007 2008 2007

Group Company

Balance at the end of the year 14 424 - - -

Amortised cost 3 100 - - -

Cumulative fair value adjustment - other market risk 11 324 - - -

Unlisted promissory notes

Balance at the beginning of the year 14 975 - - -

Amortised cost 14 975 - - -

Cumulative fair value adjustment - - - -

Additions at cost - 14 975 - -

Disposals at cost (14 975) - - -

Fair value adjustment - - - -


Credit risk - - - -

Balance at the end of the year - 14 975 - -

Amortised cost - 14 975 - -

Cumulative fair value adjustment - - - -

Total at fair value 14 424 111 933 - -

For fi nancial assets designated at fair value:

Maximum exposure to credit risk - 111 933 - -

Amount by which credit mitigation or derivatives offset credit risk - - - -

Credit risk exposure after taking into account credit mitigation

or derivative - 111 933 - -

The cumulative change in fair value arising from changes in

credit risk - - - -

The cumulative change in fair value arising from changes in

credit risk associated with mitigating instrument - - - -

The methods and assumptions applied to calculate the fair value changes due to exchange rate risk and market risk are set out in

Notes 30.4 and 30.8.

Fair value adjustments are not attributable to changes in credit risk during the year and cumulatively.

The directors’ valuation of investments at fair value through profi t or loss is equal to the book value.

The fi nancial assets and their peformances are managed and evaluated on a fair value basis in accordance with a documented risk

management strategy. Information about the Group is provided internally on that basis to the Management Committee and Board of

Directors.

5. INVESTMENTS AT FAIR VALUE THROUGH

PROFIT OR LOSS continued


R’000 R’000 R’000 R’000

2008 2007 2008 2007

Group Company

6. LOANS AND ADVANCES TO CLIENTS

Maturity analysis of loans and advances

Demand to one month 374 207 292 161 - -

One to three months 395 232 175 516 - -

Three months to one year 967 597 374 045 - -

More than one year 545 632 108 109 - -

Maximum exposure to credit risk(1)(2) 2 282 668 949 831 - -

Unearned deferred loan fee income (90 548) (35 654) - -

Gross loans and advances 2 192 120 914 177 - -

Allowance for impaired loans and advances (172 920) (110 917) - -

Net amount 2 019 200 803 260 - -

Effective interest rates per month (%)

• Demand to one month 10.0 10.7 - -

• One to three months 6.7 7.4 - -

• Three months to one year 4.6 4.4 - -

• More than one year 3.5 3.3 - -

Credit quality of performing loans and advances(3)

Top two grades of the internal rating system 383 694 152 065

Percentage of Total Performing Loans 19.72% 18.81%

Bottom two grades of the internal rating system 8 936 11 630

Percentage of Total Performing Loans 0.46% 1.44%

Carrying amount of fi nancial assets that would otherwise be past

due or impaired whose terms have been renegotiated 3 686 720

Impairment of loans and advances

Not past due 1 891 105 765 547 - -

Gross 1 945 582 808 304 - -

Impairment (54 477) (42 757) - -

Past due 128 095 37 713 - -

Gross 246 538 105 873 - -

Impairment (118 443) (68 160) - -

Net 2 019 200 803 260 - -

Past due loans and advances are in arrears from one day to three months.

There were no past due but unimpaired loans and advances.

Movement on provision for impaired advances:

Opening balance 110 917 92 649 - -

Unidentifi ed losses 42 757 29 049 - -

Identifi ed losses 68 160 63 600 - -

Movement 62 003 18 268 - -


Identifi ed losses 38 147 (5 465) - -

Unwinding of the discount on identifi ed losses 12 136 10 025 - -

Closing Balance 172 920 110 917 - -


Identifi ed losses 118 443 68 160 - -

Included in loans and advances is an investment of R16.7 million (2007: 15.1 million) in cumulative preference shares bearing interest

at 80% of the prime interest rate with a redemption date of 15 February 2014. The remainder of loans and advances comprise of

unsecured loans to individuals at fi xed rates.

(1) Loans and advances are unsecured and the entire balance is exposed to credit risk.

(2) Included within loans and advances is related accrued interest receivable of R18.1 million (2007: R12.8 million).

(3) The internal rating system comprises 21 grades and qualifi cation per product is governed by grading .




R’000 R’000 R’000 R’000

2008 2007 2008 2007

Group Company

7. INVENTORY

Finished consumer goods 17 741 10 928 - -

The cost of obsolete inventories recognised as expense

and included in cost of sales amounted to R0.3 million

and (2007: R0.3 million)

8. OTHER RECEIVABLES

Rental deposits 1 811 1 729 - -

Accrued income 8 213 780 - -

Derivative (Note 43) 290 - - -

Financial instruments 10 314 2 509 - -

Prepayments 9 033 7 176 - -

19 347 9 685 - -

Current 17 306 7 956 - -

Non-current 2 041 1 729 - -

9. GROUP LOANS RECEIVABLE

Loans to subsidiaries - - 8 843 7 637

Current - - 8 843 7 637

Non-current - - - -

Loans to subsidiaries are interest-free and have no fi xed

repayment terms.

10. INVESTMENT IN SUBSIDIARIES

Unlisted

Subsidiaries at cost - - 821 127 821 127

The directors’ valuation of the investment in subsidiaries is at least equal to the book value.

The following information relates to the company’s interest in subsidiaries:

Name Domicile Holding % Nature of business

Capitec Bank Limited South Africa 100% Banking

Keynes Rational Corporate Services (Pty) Limited South Africa 100% Dormant

Smartfi n Financial Services (Pty) Limited South Africa 100% Dormant

Finaid Financial Services (Pty) Limited South Africa 100% Dormant

Keymatrix (Pty) Limited South Africa 100% Dormant

Key Distributors (Pty) Limited South Africa 75% Wholesale distribution

Capitec Bank Holdings Share Trust South Africa - Share incentive trust

Capitec Bank Group Employee Empowerment Trust South Africa - Employee Empowerment Trust

The holding company’s interest in the aggregate income earned and losses incurred after tax by the subsidiaries amounted to

R205.5 million (2007: R117.8 million) and R0.2 million (2007: R0.5 million) respectively. All holdings are in the ordinary share capital

of the subsidiary concerned. Holdings are unchanged from 2007.

In terms of the shareholders agreement the holding company absorbed all losses incurred by Key Distributors including the minority’s

share of these losses. Prior losses must be made good before the minorities can participate in their share of the profi ts.

At year-end, Key Distributors had an accumulated loss of R7.6 million (2007: R9.3 million) and therefore the minorities will not yet

share in any profi ts.


2008 Offi ce

Land and Computer equipment

buildings* equipment and vehicles Total

Year ended 29 February 2008 R’000 R’000 R’000 R’000

Opening net book value 1 410 57 500 96 730 155 640

Additions 28 39 526 61 354 100 908

Disposals - (195) (893) (1 088)

Depreciation charge (41) (26 181) (33 065) (59 287)

Net book value at end of year 1 397 70 650 124 126 196 173

Cost 1 545 176 037 230 245 407 827

Accumulated depreciation (148) (105 387) (106 119) (211 654)



Opening net book value 1 451 49 597 82 908 133 956

Additions - 31 955 39 203 71 158

Disposals - (591) (1 085) (1 676)

Depreciation charge (41) (23 461) (24 296) (47 798)


Cost 1 517 138 146 174 260 313 923

Accumulated depreciation (107) (80 646) (77 530) (158 283)


* The land and buildings are encumbered in terms of mortgage bond (Note 14).

2007

11. PROPERTY AND EQUIPMENT




R’000 R’000 R’000 R’000

2008 2007 2008 2007

Group Company

12. INTANGIBLE ASSETS

Software

Opening net book value 42 604 47 688 - -

Additions 16 047 14 799 - -

Amortisation charge (21 032) (19 883) - -

Net book value at end of year 37 619 42 604 - -

Cost 129 252 113 205 - -

Accumulated amortisation (91 633) (70 601) - -

Net book value at end of year 37 619 42 604 - -

Computer software substantially consists of the primary

banking application system.

13 DEFERRED INCOME TAX ASSETS

Deferred income taxes are calculated on all temporary

differences under the liability method using an effective

tax rate of 28% (2007: 29%).

The movement on the deferred income tax account is as follows:

At beginning of year 13 846 6 648 - -

Movement in deferred tax taken to income statement 121 7 198 - -

Utilisation of assessable losses - (75) - -

Movements due to other temporary differences 754 7 734 - -

STC credits received (134) (82) - -

Prior year adjustments - (379) - -

Rate change (499) - - -

At end of year 13 967 13 846 - -

Deferred tax asset may be analysed as follows:

Provisions and accruals 15 507 14 929 - -

Capital allowances 572 625 - -

Prepayments (2 112) (1 842) - -

STC credits - 134 - -

13 967 13 846 - -

Current 4 292 5 885 - -

Non-current 9 675 7 961 - -


R’000 R’000 R’000 R’000

2008 2007 2008 2007

Group Company

14. DEPOSITS AT AMORTISED COST

Deposits by maturity 1 475 696 842 172 - -

Within one month 942 758 579 594 - -

One to three months 185 521 477 - -

Three months to one year 186 443 6 724 - -


Deposits by nature 1 475 696 842 172 - -

Retail 842 226 554 233 - -

Wholesale 529 336 272 933 - -

Negotiable instruments 50 815 - - -

Reserve Bank settlement balance 53 319 15 006 - -

Effective interest rates per month (%)

Demand to one month 9.0 8.3

One to three months 11.7 11.8

Three months to one year 11.2 14.1

More than one year 10.6 10.7

Wholesale deposits include a mortgage bond of R1.0 million

(2007: R1.1 million) that is secured as stated in Note 11.

The remainder of the deposits are unsecured.

15. DEPOSITS AT FAIR VALUE THROUGH PROFIT OR LOSS

Deposits by maturity:

Within one month - - - -

One to three months 4 940 2 149 - -

Three months to one year 30 556 - - -


52 163 52 149 - -

Fair value adjustment attributable to changes in:

Credit risk - -

Interest rate risk 262 2 233 - -

52 425 54 382 - -

Amount payable on maturity 56 565 64 173 - -

Difference between amounts payable on maturity and the

fair value of the liabilities relating to future fi nance cost. 4 140 9 791 - -

The fi nancial liabilities and their performances are managed and evaluated on a fair value basis, in accordance with a documented risk

management strategy. Information about the Group is provided internally on that basis to the Management Committee and Board of

Directors.

The contractual interest rate on the funding is 13.075% (2007: 13.075%) fi xed, and the fair value thereof at 29 February 2008 was

determined after applying a discount rate of 12.295% (2007: 10.320%). Please refer to Note 30.5 for a description of valuation

methods applied to calculate fair value.

The credit risk premium remained constant as the impact of the Moody’s ratings upgrade for Capitec Bank from Baa1.za to A2.za in

May 2007 was offset by higher credit premium expectations in the market surrounding the sub-prime crisis (2007 - constant).

These deposits are all unsecured and comprise wholesale deposits.




R’000 R’000 R’000 R’000

2008 2007 2008 2007

Group Company

16. TRADE AND OTHER PAYABLES

Trade payables 49 983 36 835 20 86

Preference share dividends payable 8 889 7 617 8 889 7 617

Accruals 84 496 50 194 - -

Derivative - 2 - -

143 368 94 648 8 909 7 703

Current 128 733 85 815 8 909 7 703

Non-current 14 635 8 833 - -

17. PROVISIONS

Provision for bonuses

Opening balance (2007 - pending litigation) 3 850 300 - -

Addition - 3 850 - -

Release (2007 - pending litigation) (3 850) (300) - -

Closing balance (2007 - bonuses) - 3 850 - -

Current - 3 850 - -

Non-current - - - -

18. GROUP LOANS PAYABLE

Loans from subsidiaries - - 4 247 4 247

Current - - 4 247 4 247

Non-current - - - -

Loans from subsidiaries are interest-free and have no fi xed repayment terms.


R’000 R’000 R’000 R’000

2008 2007 2008 2007

Group Company

19. SHARE CAPITAL AND PREMIUM

Authorised

Ordinary shares (2)

100 000 000 shares of R0.01 each 1 000 1 000 1 000 1 000


preference shares(1)

100 000 000 shares of R0.01 each 1 000 1 000 1 000 1 000

2 000 2 000 2 000 2 000

Issued

Ordinary share capital and premium 647 363 647 363 647 363 647 363

81 928 412 (2007: 81 928 412) shares of R0.01 each at par 819 819 819 819

Share premium 646 544 646 544 646 544 646 544


preference share capital and premium(1) 154 606 154 606 154 606 154 606

1 684 211 shares of R0.01 each (2007: 1 684 211) at par 17 17 17 17

Share premium 154 589 154 589 154 589 154 589

Total issued share capital and premium 801 969 801 969 801 969 801 969

(1) The preference shares carry a coupon rate of 75% of the prime overdraft rate based on a face value of R100 per share.

(2) 8 192 841 (2007: 7 192 841 ) of the unissued shares are under the control of the directors until the next annual general meeting.

The share incentive trust purchased shares in the Group for the purpose of settling share options issued to employees in terms of

the Group share incentive scheme. There were no treasury shares on hand at year-end (2007: Nil).

The shares are refl ected as a deduction against equity at cost to the group. During the year an expense of R67 million (R48 million

after tax) (2007: R22 million, R16 million after tax) was realised on the settlement of share options as refl ected in the statement of

changes in shareholders’ equity.




R’000 R’000 R’000 R’000

2008 2007 2008 2007

Group Company

20 RESERVES

General banking risk reserve

At beginning of year 2 439 710 - -

Transfer to retained earnings (2 439) - - -

Transfer from retained earnings - 1 729 - -

At end of year - 2 439 - -

This reserve was required in terms of Basel I and is not

required in terms of Basel II, implemented in South Africa

from 1 January 2008.

Banking regulations required the Group to make an

appropriation to a general banking reserve in instances

where the allowances for impairment required for regulatory

purposes exceeded the amount that may be provided in

terms of IFRS. These reserves could only be distributed

to the extent that the differences between regulatory and

accounting impairment allowances were extinguished.

21. NET INTEREST INCOME

Interest income

Loans and advances to customers 709 166 924 370 - -

Marketable securities 3 659 4 417 - -

Cash and cash equivalents* 27 238 38 741 - -

740 063 967 528 - -

Interest expense

Demand deposits (56 640) (35 076) - -

Term deposits (43 949) (34 735) - -

Negotiable deposits (815) - - -

Forward foreign exchange contracts (45) (25) - -

(101 449) (69 836) - -

Net interest income 638 614 897 692 - -

*Interest on cash and cash equivalents comprises

Money market placements 4 314 27 502 - -

Bank balances 16 623 7 450 - -

Central bank balances 6 301 3 789 - -

27 238 38 741 - -

Included within interest income is R11.6 million (2007: R7.0 million) with respect of interest income accrued on impaired fi nancial

assets.


R’000 R’000 R’000 R’000

2008 2007 2008 2007

Group Company

22. DIVIDEND INCOME

Subsidiaries - - 86 650 54 450

Ordinary dividends - - 69 639 46 833

Preference dividends - - 17 011 7 617

Instruments of fair value through profi t and loss 15 392 1 469 - -

15 392 1 469 86 650 54 450

23. NET IMPAIRMENT CHARGE ON LOANS

AND ADVANCES

Bad debts 203 391 165 434 - -

Movement in impairment allowance 62 003 18 268 - -

Bad debts recovered (34 515) (22 431) - -

Net impairment charge 230 879 161 271 - -

24. NET MOVEMENT IN FINANCIAL

INSTRUMENTS HELD AT FAIR VALUE

THROUGH PROFIT OR LOSS

Financial assets held at fair value through profi t or loss 5 847 (3 577) - -

Change in fair value due to changes in credit risk - - - -

Change in fair value due to other factors 5 847 (3 577) - -

Financial liabilities held at fair value through profi t or loss 1 971 2 720 - -

Change in fair value due to changes in credit risk - - - -

Change in fair value due to other factors 1 971 2 720 - -

7 818 (857) - -

The methods and assumptions applied to calculate the fair value changes due to credit risk are set out in Note 30.8 and credit risk

mitigation techniques are set out in Note 30.1.




R’000 R’000 R’000 R’000

2008 2007 2008 2007

Group Company

25. OPERATING PROFIT BEFORE TAX

The following items have been included in arriving at

operating profi t before tax:

Loss on disposal of equipment 204 1 528 - -

Depreciation on fi xed assets

Depreciation based on original estimates 59 287 47 798 - -

Amortisation of computer software 21 032 19 883 - -

Foreign exchange losses 632 148 - -

(Excludes change in fair value of fi nancial assets through

profi t or loss as per Note 5)

Operating lease rentals

Land and buildings 62 239 52 870 - -

Offi ce equipment 2 178 2 439 - -

64 417 55 309 - -

Income from sub-letting (225) (1 548) - -

Auditors’ remuneration

Audit fees – current year 1 552 1 826 - -

– underprovision previous year - 116 - -

Other services 437 597 - -

1 989 2 539 - -

Directors’ emoluments (included in staff costs below)

Executive

Salaries 4 565 3 790

Fringe benefi ts 402 396

Bonuses 2 908 2 179

Non-executive

Fees 1 480 1 263

Less: Paid by subsidiaries (9 355) (7 628)

Staff costs

Salaries and wages 329 548 242 446 - -

Share-based payment 7 009 4 005 - -

Social security cost 7 353 5 234 - -

Training cost 12 114 8 204 - -

Training refund (1 385) (980) - -

354 639 258 909 - -

Consultancy fees relating to non-employees comprise:

Managerial services 422 452 - -

Secretarial services 936 325 385 296

Technical 2 923 2 885 - -

Administrative 2 732 2 616 - -

7 013 6 278 385 296


R’000 R’000 R’000 R’000

2008 2007 2008 2007

Group Company

26. TAX EXPENSE

Current tax 95 402 83 451 - -

- normal company tax 87 075 77 056 - -

- secondary tax on companies 8 327 6 395 - -

Deferred tax (121) (7 198) - -

- normal company tax (255) (7 280) - -

- secondary tax on companies 134 82 - -

95 281 76 253 - -

The tax on the profi t before tax differs from the theoretical

amount that would arise using the basic tax rate as follows:

Profi t before tax 324 346 243 177 86 650 54 383

Tax calculated at a tax rate of 29% (2007: 29%) 94 060 70 521 25 128 15 771

Secondary tax on companies* 8 461 6 477 - -

Income not subject to tax (4 947) (736) (25 128) (15 771)

Expenses not deductible (258) 331 - -

Unutilised tax loss - 19 - -

Tax loss not previously recognised - (75) - -

Prior year re-estimate - (289) - -

Capital gains tax (2 534) - - -

Tax rate change of future value in use of deferred tax asset 499 - - -

Tax rate difference - 5 - -

Tax charge 95 281 76 253 - -

Estimated tax losses at year-end available for utilisation

against future taxable income 19 988 9 367 171 237

Less: Applied in raising a deferred tax asset - - - -

Net calculated tax losses carried forward 19 988 9 367 171 237

Tax relief calculated at current tax rates 7 079 2 716 48 69

The utilisation of the tax losses is dependent on suffi cient

future taxable income being earned.

* Secondary tax on companies at 12.5% to 30 September 2007; 10% from 1 October 2007




R’000 R’000

2008 2007

Group

27. EARNINGS PER SHARE ATTRIBUTABLE TO ORDINARY SHAREHOLDERS

Basic attributable earnings per share

Basic attributable earnings per share is calculated by dividing the net profi t after tax attributable to

ordinary equity holders by the weighted average number of ordinary shares in issue during the year.

Net profi t after tax 229 065 166 924

Preference dividend (17 011) (7 617)

Net profi t after tax attributable to ordinary shareholders 212 054 159 307

Weighted average number of ordinary shares in issue (thousands) 81 928 72 120

Basic attributable earnings per share (cents) 258.8 220.9

Diluted attributable earnings per share

Diluted attributable earnings per share is calculated using the weighted average number of

ordinary shares in issue, adjusted to assume conversion of all potentially dilutive ordinary

shares. For 2008 and 2007 potentially dilutive ordinary shares consisted only of share options.

A calculation is done to determine the number of shares that could have been acquired at fair

value (determined as the average annual market share price of the company’s shares) based

on the monetary value of the subscription rights attached to outstanding options. The number of

shares calculated above is compared with the number of shares that would have been issued

assuming the exercise of the share options. The difference is added to the denominator as an

issue of ordinary shares for no consideration. No adjustment is made to earnings (numerator).

Net profi t used to determine diluted attributable earnings per share 212 054 159 307

Weighted average number of ordinary shares in issue (thousands) 81 928 72 120

Adjustment for:

– exercise of share options 2 783 3 923

Weighted average number of ordinary shares for diluted attributable earnings per share (thousands) 84 711 76 043

Diluted attributable earnings per share (cents) 250.3 209.5

28. HEADLINE EARNINGS PER SHARE ATTRIBUTABLE TO

ORDINARY SHAREHOLDERS

Basic headline earnings per share

Net profi t attributable to ordinary shareholders 212 054 159 307

Non-headline items

Disposal of equipment 204 1 528

Taxation (59) (443)

Headline earnings 212 199 160 392

Headline earnings per share (cents) 259.0 222.4

Diluted headline earnings per share

Headline earnings 212 199 160 392

Diluted headline earnings per share (cents) 250.5 210.9


29 DIVIDEND PER SHARE

The directors declared a fi nal dividend in respect of 2008 of 75 cents per share (2007: 60 cents per share) amounting to a total dividend

of R61.4 million (2007: R49.2 million) on 1 April 2008. The secondary tax on companies in respect of this dividend will amount to

R6.1 million (2007: R6.1 million). These fi nancial statements do not refl ect this dividend payable, which will be accounted for in

shareholders’ equity as an appropriation of retained earnings in the year ending 28 February 2009, which is in line with recommended

accounting practice. An interim dividend of 25 cents per share (2007: 20 cents per share) was declared on 27 September 2007 and

paid on 3 December 2007.

30. FINANCIAL RISK MANAGEMENT

Financial instruments carried on the balance sheet are set out in Note 30.7.

The Group views risk management as a measure of ensuring a responsible return on shareholders’ equity. Ultimately, the board

remains responsible for risk management. To assist them in performing this duty, the company is managed through a system of

internal controls functioning throughout the entity so that an awareness of risk pervades every aspect of our business and is seen as

the responsibility of each employee of the Group. The board has established a Risk and Capital Management Committee comprising

three independent non-executive directors. The committee has a formal charter in accordance with which it assists the board in

reviewing the processes followed to identify risk and considering such risks in the Group environment. The committee also assists the

board in ensuring that risk assessment is an ongoing process and that a formal risk assessment is undertaken at least quarterly.

Subcommittees comprising executives and senior management have been established to deal in a structured manner with specifi c

risks facing the company:

• Credit Committee – credit risk;

• Assets and Liability Committee – interest rate, market, liquidity, counterparty, currency and capital adequacy risk; and

• Operational Risk Committee – legal, compliance, technology, operational and reputation risk.

The Group operates in a structured manner with defi ned processes and procedures enabling risk assessment within a controlled

environment. Accordingly, an assessment of key risks is performed with weightings on impact and probability assigned. Existing

controls are assessed and if necessary, adjusted. Thereafter reports are generated at regular intervals to enable monitoring of risk

levels.

30.1 Credit risk

Potential concentrations of credit risk exist principally in cash, cash equivalents, listed preference shares and promissory notes (Note

4 and 5). The Group only deposits cash surpluses with major banks, corporates and money market funds of high credit standing.

Monetory limits are set taking into account the credit rating of the counterparty and are managed by the Asset and Liabilty Committee

(ALCO).

Loans and advances are disclosed net of impairment allowances. The Group operates in the microfi nancing industry. The Group’s

exposure to concentrated credit risk is low due to the nature and distribution of the loan book. Exposure to systemic credit risk is

regarded as being higher than normal banking activities due to the demographic credit characteristics of the client base. Measures

taken by the Group to limit credit risk to acceptable levels include, inter alia, the application of standard credit acceptance procedures

to assess potential clients, daily monitoring of collectible balances at both branch and head offi ce level and monitoring by the Risk

Committee. No security is obtained for loans and advances, and accordingly the entire balance as per the balance sheet is exposed

to credit risk.




30.2 Geographical concentrations of assets, liabilities and off-balance sheet items

All the Group’s operating activities are situated within the Republic of South Africa.

Capitec Bank branches are distributed across South Africa and at year-end the breakdown by province was as follows:

30.3 Interest rate risk

Prior to the implementation of the National Credit Act (NCA), the Group operated within the ambit of the Usury Act exemption notice when

considering interest rates on the advance of short-term microloans. Interest rates and loan products were reviewed pre-implementation and

adjusted to comply with the requirements of the NCA.

The current Group interest profi le is uncomplicated and is monitored by the Asset and Liability Committee (ALCO). Effective rates

on deposit balances are disclosed in Note 14 and 15. The Group currently has a conservative interest rate profi le and is interest rate

insensitive, relative to the general banking industry.

The Group’s equity and profi t and loss have limited uncontrolled exposure to changes in interest rates. The Group operates a fi xed

and discretionary interest rate profi le for most assets and liabilities. Discretionary rate items are those where the rates are not

contractually bound to a market interest rate, but rather management can at their discretion increase or decrease the rate as deemed

appropriate. Financial assets and liabilities are accounted for, in the main, on an amortised cost basis and therefore the income

statement is not signifi cantly impacted by fair value interest rate risk. Certain fi xed rate wholesale deposits have been measured at

fair value thorough profi t and loss, which has a limited profi t and loss accounting impact, (refer Note 15). The return on surplus cash

balances placed in call money market accounts varies with interest rates, resulting in cash fl ow interest rate risk. The Group has

discretion over the rates offered on its demand savings deposits. Retail advances are only offered in fi xed rate terms. The maturity

breakdown of the advances book is set out in Note 6 and Note 30.5.

ALCO meets monthly and considers the result of management’s analysis of the impact of interest rates on the Group which includes,

inter alia, the results of various models and the impact of interest rate strategy on the gross margin.

The sensitivity analysis below refl ects the impact on profi t and loss of a 200 basis point increase or decrease in interest rates:

• Immediately following the reporting date

• Based on fl oating rate assets and liabilities held at amortised cost (cash and cash equivalents, promissory notes, negotiable

instruments, retail savings deposits)

• Assets and liabilities accounted for at fair value through profi t and loss

• On balance sheet at the reporting date

The continuity of items for the purpose of this analysis is the contractual maturity dates.

anches are distributed acros

ate risk

2008 2007

Eastern Cape 41 33

Free State 19 16

Gauteng 79 65

KwaZulu-Natal 53 45

Limpopo 23 20

Mpumalanga 36 28

North West 23 18

Northern Cape 11 10

Western Cape 46 45

331 280


2008 2007

200 basis points Pre tax Post tax Pre tax Post tax

R’000 R’000 R’000 R’000

Increase (6 488) (4 671) 4 069 2 930

Decrease 6 473 4 660 (4 154) (2 991)

2008 2007

200 basis points Pre tax Post tax Pre tax Post tax

R’000 R’000 R’000 R’000

Increase 108 78 1 716 1 235

Decrease (123) (89) (1 801) (1 297)

If the above sensitivity is adjusted by using average February balances for cash on call and that element of discretionary retail savings

that could potentially be adjusted, maintaining such balances for the twelve months following the year end the impact on the profi t and

loss of the same basis point adjustment on year-end rates, and assuming no further rate changes in the year would be:

All other assumptions remain consistent with last year.

A parallel shift up and down in the interest rates applicable to the respective underlying exposures was used.

30.4 Currency risk

The exposure to foreign currency risk relating to the importation of capital equipment, technology and technology support services

needed for the core banking activities is managed through the purchase of forward foreign exchange contracts.

There is limited currency risk due to investments held in US Dollar-based unlisted investments held in Visa and MasterCard included

under Note 5.

30.5 Liquidity risk

The bank manages liquidity cautiously and operates an uncomplicated maturity profi le which is monitored by ALCO. The short-term

nature of the loan book relative to the size of the deposit book and the term nature of much of the funding reduces the liquidity risk of

the Group. The core component of the retail savings book that is stable exceeds the contractual maturity shortfall in the demand to

one month category signifi cantly.

The table below analyses assets and liabilities of the Group into relevant maturity groupings based on the remaining period at balance

sheet date to the contractual maturity date.




Demand One to Three More

to one three months to than one

month months one year year Adjustment(1) Total

R’000 R’000 R’000 R’000 R’000 R’000

Assets

Loans and advances to customers 6 374 207 395 232 967 597 545 632 (90 548) 2 192 120

Cash and cash equivalents 4 568 485 49 416 - - - 617 901

Investments at fair value through profi t or loss 5 14 424 - - - - 14 424

Other receivables 8 8 128 - 145 2 041 - 10 314

Assets 965 244 444 648 967 742 547 673 (90 548) 2 834 759

Undiscounted liabilities

Liabilities to depositors 14 945 822 193 552 212 987 299 801 - 1 652 162

Trade, other payables and taxation 59 631 68 957 47 601 14 635 - 190 824

Deposits at fair value through profi t or loss 15 - 5 491 34 106 16 706 262 56 565

Provisions 17 - - - - - -

Undiscounted liabilities 1 005 453 268 000 294 694 331 142 262 1 899 551

Adjustments for undiscounted liabilities to depositors (3 064) (8 582) (30 094) (138 866) - (180 606)

Discounted liabilities 1 002 389 259 418 264 600 192 276 262 1 718 945

Net liquidity (shortfall) / excess (37 145) 185 230 703 142 355 397 (90 810) 1 115 814

Cumulative liquidity (shortfall) / excess (37 145) 148 085 851 227 1 206 624 1 115 814 1 115 814

Assets(2)

Loans and advances to customers 6 292 161 175 516 374 045 108 109 (35 654) 914 177

Cash and cash equivalents 4 1 043 746 - - - - 1 043 746

Investments at fair value through profi t or loss 5 111 933 - - - - 111 933

Other receivables 8 780 - - 1 729 - 2 509

Assets 1 448 620 175 516 374 045 109 838 (35 654) 2 072 365

Undiscounted liabilities(3)

Liabilities to depositors 14 581 650 3 524 20 989 417 299 - 1 023 462

Trade, other payables and taxation 86 944 863 80 991 4 983 - 173 781

Deposits at fair value through profi t or loss 15 - 3 242 4 366 54 332 2 233 64 173

Provisions 17 - - - 3 850 - 3 850

Undiscounted liabilities 668 594 7 629 106 346 480 464 2 233 1 265 266

Adjustments for undiscounted liabilities to depositors (2 056) (4 140) (18 631) (166 254) - (191 081)

Discounted liabilities 666 538 3 489 87 715 314 210 2 233 1 074 185

Net liquidity excess / (shortfall) 782 082 172 027 286 330 (204 372) (37 887) 998 180

Cumulative liquidity excess 782 082 954 109 1 240 439 1 036 067 998 180 998 180

(1) Adjustments to loans to customers relates to deferred initiation fee income. Adjustments to deposits at fair value through profi t or loss

relates to fair value adjustments. (2) Prior year assets have been recompiled to include all fi nancial assets in line with the current year. (3) Prior year fi nancial liabilities have been restated to gross cash fl ows as required in terms of IFRS 7.

The contractual maturity of fi nancial assets and fi nancial liabilities of the company are all on demand to one month.

Maturities of fi nancial assets and fi nancial

liabilities (discounted cash fl ows)

2008

2007


R’000 R’000 R’000 R’000

2008* 2007** 2008* 2007**

Group Bank

Primary (Tier 1) capital

Ordinary share capital 647 363 647 363 1 117 671 1 117 671

Retained earnings 415 458 313 049 (102 324) (221 961)

Qualifying preference share capital 154 606 154 606 154 606 154 606

Prescribed deductions (47 599) (171 538) (46 564) (171 546)

1 169 828 943 480 1 123 389 878 770

Secondary (Tier 2) capital

Qualifying unidentifi ed impairments 20 044 2 439 20 044 2 439

20 044 2 439 20 044 2 439

Total qualifying regulatory capital 1 189 872 945 919 1 143 433 881 209

Total capital adequacy % 36.4 78.9 35.1 74.1

Primary % 35.8 78.7 34.5 73.9

Secondary % 0.6 0.2 0.6 0.2

Required capital adequacy % 25.0 15.0 25.0 15.0

Required regulatory capital 817 462 179 744 814 568 178 248

Risk weighted assets

Credit risk

- on balance sheet 1 600 786 862 915 1 602 537 870 312

- off balance sheet - 119 624 1 004 119 624

1 600 786 982 539 1 603 541 989 936

Operational risk 1 369 761 - 1 356 420 -

Equity risk in the banking book 14 424 12 177 14 424 12 177

Other assets 284 876 203 578 283 885 186 208

Risk weighted assets 3 269 847 1 198 294 3 258 270 1 188 321

Total assets based on IFRS 2 936 372 2 191 642 2 937 527 2 212 907

Total risk weighted assets - adjustment 333 475 (993 348) 320 743 (1 024 586)

Total risk weighted assets - regulatory 3 269 847 1 198 294 3 258 270 1 188 321

* Calculated in terms of Basel II ** Calculated in terms of Basel I

Assets are assigned risk-weightings according to their nature. These risk-weightings, which are prescribed by the SARB with reference to

Basel II, refl ect the estimate of credit, operational and market risks after considering eligible collateral. A similar treatment is adopted for

off-balance sheet exposure, with adjustments to refl ect the more contingent nature of the potential losses.

The adjustments made to IFRS assets refl ect, in the main, the impact of risk weightings applied on calculated base IFRS values and the

addition of a risk weighted equivalent for operational risks

30.6 Capital management

The Group’s principal objectives when managing capital are to:

• Address the expectations of its shareholders, and so to optimise business activities to ensure return on capital targets are

achieved through effi cient capital management.

• Ensure that the Group holds suffi cient risk capital. Risk capital caters for unexpected losses that may arise, protects shareholders

and depositors and thereby assures the sustainability of the bank through the business cycle.

• Comply with the capital supervisory requirements of the South African Reserve Bank (SARB) as codifi ed in the Banks Act 1990

(as revised) and related Regulations.

The Group conducts a Capitec Internal Capital Adequacy Assessment Process (CICAAP) on an ongoing basis, which drives the

Group’s position on capital management matters. The CICAAP reviews the historic, current and future capital positioning of the

bank both from an internal and regulatory capital perspective.

The table below summarises the composition of

regulatory capital for the Group and principal

banking subsidiary.




30.7 Gains and losses per category of fi nancial assets and fi nancial liabilities

30.8 Classifi cation of fi nancial assets and fi nancial liabilities

fi nancial liabilities30.7 Gains and losses peper cr catea gorg y of fi nancial assets and

Designated Held for Loans and Available Other

at fair value trading receivables for sale liabilities Total

R’000 R’000 R’000 R’000 R’000 R’000

Interest income 21 - - 740 063 - - 740 063

Interest expense 21 (6 581) (45) - - (94 823) (101 449)

Loan fee income - - 574 584 - - 574 584

Transaction fee income - - - - 168 361 168 361

ransaction fee expense - - - - (89 545) (89 545)

Dividend income 22 15 392 - - - - 15 392

Net impairment on loans and advances 23 - - (230 879) - - (230 879)

Net movement in fi nancial instruments

held at fair value through profi t and loss 24 7 818 - - - - 7 818

Interest income 21 - - 967 528 - - 967 528

Interest expense 21 (8 687) (25) - - (61 124) (69 836)

Loan fee income - - 76 943 - - 76 943

Transaction fee income - - - - 93 671 93 671

Transaction fee expense - - - - (59 057) (59 057)

Dividend income 22 1 469 1 469

Net impairment on loans and advances 23 - - (161 271) - - (161 271)

Net movement in fi nancial instruments

held at fair value through profi t and loss 24 (857) - - - - (857)

There were no gains or losses on fi nancial instruments for the company

2008

2007

2007

Notes

Group

Group

2008

Designated Held for Loans and Available Other Fair

at fair value trading receivables for sale liabilities Total Value

R’000 R’000 R’000 R’000 R’000 R’000 R’000

Financial assets

Cash and cash equivalents 4 - - 617 901 - - 617 901 617 901

Financial assets at fair value through profi t or loss 5 14 424 - - - - 14 424 14 424

Loans and advances to clients 6 - - 2 019 200 - - 2 019 200 2 009 816

Other receivables 8 - 290 10 024 - - 10 314 9 729

Financial liabilities

Deposits at amortised cost 14 - - - - 1 475 696 1 475 696 1 467 110

Deposits held at fair value

through profi t or loss 15 52 425 - - - - 52 425 52 425

Trade and other payables 16 - - - - 143 368 143 368 143 368

Provisions 17 - - - - - - -

Financial assets

Cash and cash equivalents 4 - - 1 043 746 - - 1 043 746 1 043 746

Financial assets at fair value through

profi t or loss 5 111 933 - - - - 111 933 111 933

Loans and advances to clients 6 - - 803 260 - - 803 260 803 260

Other receivables 8 - - 2 509 - - 2 509 2 327


Deposits at amortised cost 14 - - - - 842 172 842 172 844 344

Deposits held at fair value

through profi t or loss 15 54 382 - - - - 54 382 54 382

Trade and other payables 16 - 2 - - 94 646 94 648 94 648

Provisions 17 - - - - 3 850 3 850 3 850

Notes


Designated Held for Loans and Available Other Fair

at fair value trading receivables for sale liabilities Total value

R’000 R’000 R’000 R’000 R’000 R’000 R’000

Financial assets

Group loans receivable 9 8 843 8 843 8 843


Trade and other payables 16 8 909 8 909 8 909

Group loans payable 18 4 247 4 247 4 247

Financial assets

Group loans receivable 9 7 637 7 637 7 637


Trade and other payables 16 7 703 7 703 7 703

Group loans payable 18 4 247 4 247 4 247

Valuation of assets and liabilities

The fair value of fi nancial liabilities is calculated by discounting the contractual cash fl ows based on an appropriate market related rate.

The market related rate is determined with reference to the movement in the risk-free rate for the remaining duration of the liabilities and

adjusted for any movement in the risk premium as determined through the judgement of management taking into account their knowledge

of the market including recent transactions and developments.

The difference in the present value for assets and liabilities, based on the risk premium determined at the later of the start of the fi nancial

year or the inception of the instrument compared to the risk premium at the earlier of year end or derecognition of the fi nancial liability is

determined to be the change in fair value attributable to credit risk for the current year.

Financial assets are valued based on the nature of the item. Listed fi nancial assets are valued with reference to the closing bid price.

Unlisted debt instruments are valued by discounting expected cash fl ows based on an appropriate market related rate. The discount rate

is determined as for fi nancial liabilities, but the cash fl ows are adjusted for expected future service costs.

Unlisted equity instruments that will be converted to listed instruments are valued with reference to the current market value of the listed

instrument, adjusted for the time to and conditions of conversion and the existence of alternative markets such as over-the-counter

markets.

Other unlisted equity instruments are valued taking into account factors such as net asset value, expected cash fl ows, expected profi tability

and appropriate price to earnings ratios.

2008 Notes

30.8 Classifi cation of fi nancial assets and liabilities continued

2007

Company




R’000 R’000 R’000 R’000

2008 2007 2008 2007

Group Company

31. RETIREMENT BENEFITS

The Group contributed on behalf of all employees who elected

to be members of the provident fund. The provident fund, a

defi ned contribution fund, is administered independently of

the Group and is subject to the Pension Funds Act, 1956 (Act

24 of 1956).

The amounts contributed are included in salaries and wages

as per Note 25. Since 1 July 2001 it is compulsory for all

new appointments to be members of the provident fund. The

company will continue to contribute to the fund on behalf of

all members. The Group has no exposure in respect of any

post-retirement benefi ts payable.

32. RELATED-PARTY TRANSACTIONS

Transactions with subsidiaries

Investments in subsidiaries are disclosed in Note 10.

Dividend received

Capitec Bank Limited - - 86 650 54 450

Loans due from:

Capitec Bank Limited - - 8 843 7 637

Loans due to:

Finaid Financial Services (Pty) Limited - - 4 246 4 246

Keymatrix (Pty) Limited - - 1 1

Guarantees:(2)

Key Distributers (Pty) Limited has received a guarantee

from a fellow subsidiary, Capitec Bank Limited. The value

guaranteed is R6.8 million (2007: R6.8 million)

The balances outstanding at year end that are covered

amounted to R2.5 million (2007: 2.5 million). A market related

guarantee fee of R102 000 (2007: R102 000) was paid by

Key Distributers (Pty) Limited by Capitec Bank Limited.

Transactions with other related parties

Transactions with Arch Equity (Pty) Limited(1)

Interest received - 1 021 - -

PSG Group and subsidiaries(3)

Brokers’ fees 294 126 - -

Sponsors’ fees 56 500 56 500

Underwriters’ fee on issue of preference shares - 3 200 - 3 200

Loans and advances to directors and other key

management personnel

Loans and advances to customers

Loans outstanding at beginning of year 134 761 - -

Loans advanced during the year 86 - - -

Interest charged on loans during the year 14 37 - -

Loan repayments during the year (145) (664) - -

Loans outstanding at end of year 89 134 - -

Less advanced by subsidiaries (89) (134) - -

16 035 12 761 - -


R’000 R’000 R’000 R’000

2008 2007 2008 2007

Group Company

32. RELATED-PARTY TRANSACTIONS continued

Savings accounts from directors and other

key management personnel(4)

Due to customers

Deposits at beginning of year 549 432 - -

Change in composition of related parties (340) - - -

Interest earned during the year 178 39 - -

Deposits made (repaid) during the year 15 78 - -

Deposits at end of year 402 549 - -

Key management compensation(5)

Salaries and other short-term benefi ts 12 447 8 208 - -

Post-employment benefi ts 1 002 740 - -

Share-based payments 1 260 1 154 - -

14 709 10 102 - -

Less paid by subsidiaries (14 709) (10 102) - -

(1) In the prior year Arch Equity Limited disposed of its shareholding of the share capital of Capitec Bank Holdings Limited and were

considered a related party through their representation on the board by D Lockey. D Lockey resigned 1 September 2006.

(2) Key Distributors’ creditors are included in the group balance sheet on consolidation.

(3) PSG Capital is the corporate advisor and sponsor of the Group, while PSG Financial Services Limited was Capitec Bank Limited’s

underwriter. Transactions requiring the purchase of fi nancial instruments on the open market is conducted through a number of

intermediaries in an arm’s length manner.

(4) Savings and deposits are unsecured, carry variable interest rates and are repayable on demand.

(5) Key management compensation excludes directors’ remuneration. Refer to the directors’ report for details regarding directors’

remuneration.

Key management is considered to be members of the Management Committee.

Directors

All directors of Capitec Bank Holdings Limited have given notice that they did not have a material interest in any signifi cant contract

with the company or any of its subsidiaries, which could have given rise to a confl ict of interest during the year. Details relating to

directors’ emoluments, shareholdings and share options granted are included in the directors’ report.




R’000 R’000 R’000 R’000

2008 2007 2008 2007

Group Company

33. CASH FLOW FROM OPERATIONS

Net profi t before tax 324 346 243 177 86 650 54 383

Adjusted for non-cash items

Fair value adjustments on fi nancial assets (5 853) 3 577 - -

Fair value adjustments on fi nancial liabilities (1 971) (2 720)

Movement in impairment charge 62 003 18 268 - -

Depreciation 59 287 47 798 - -

Amortisation 21 032 19 883 -

Movement in provisions (3 850) 3 550 - -

Share-based staff costs 7 009 4 005 - -

Loss on disposal of equipment 204 1 528 - -

Movements in current assets and liabilities

Increase in loans and advances (1 277 943) (366 867) - -

(Increase) decrease in inventory (6 813) 872 - -

(Increase) decrease in other receivables (9 662) (2 608) - -

Increase in deposits 633 538 304 278 - -

Increase in trade and other payables 47 448 17 300 (66) 86

Cash fl ows from operations (151 225) 292 041 86 584 54 469

34. TAX PAID

Outstanding at beginning of year 79 133 22 493 - -

Charge to the income statement 95 281 76 253 - -

Income statement movement in deferred tax 121 7 198 - -

Tax effect on settlement of share options taken to equity (17 432) (5 291) - -

Outstanding at end of year (47 456) (79 133) - -

Tax paid 109 647 21 520 - -

35. DIVIDENDS PAID

Outstanding at beginning of year 7 617 - 7 617 -

Dividend declared during the year

Ordinary dividend 69 639 46 753 69 639 46 753

Preference dividend 17 011 7 617 17 011 7 617

Outstanding at end of the year (8 889) (7 617) (8 889) (7 617)

85 378 46 752 85 378 46 139


R’000 R’000 R’000 R’000

2008 2007 2008 2007

Group Company

36. SHARES ISSUED

Specifi c issue of shares - 299 498 - 299 498

Share issues expenses - 154 606 - 154 606

- 454 104 - 454 104

37. SHARES ACQUIRED AND OPTIONS SETTLED

Cost of shares acquired for options settled 71 469 23 441 - -

Proceeds on settlement of options (4 583) (1 192) - -

66 886 22 249 - -

38. COMMITMENTS AND CONTINGENT LIABILITIES

Property rental commitments

Within one year 67 860 58 755 - -

From one to fi ve years 155 259 141 614 - -

After fi ve years 6 665 4 340 - -

229 784 204 709 - -

Other operating lease commitments

Within one year 1 602 1 576 - -

From one to fi ve years 3 230 3 757 - -

4 832 5 333 - -

Guarantees

Issued to non-banking institutions 7 500 7 500 - -

(The value of the issued guarantees to fi nancial institutions

at fair value is nil.)

Facilities

Unutilised loan facilities to clients - 135 701 - -

Capital commitments – approved by the board

Contracted for 43 030 23 855 - -

Not contracted for 132 852 141 481 - -

175 882 165 336 - -

39. BORROWING POWERS

In terms of the articles of association of Capitec Bank Holdings Limited, the directors may at their discretion raise or borrow money

for the purpose of the business of the company without limitation. These borrowing powers are subject to the limitations of the Banks

Act, 1990 (Act 94 of 1990).

The increase in borrowings from the previous year is for the purposes of funding of general banking business including future

expansion of the loan book and capital expenditure.



Notes to the Annual Financial Statementsfor the year ended 29 February 2008forr the year ended 29 Febr

Number Number

2008 2007

2008 2007

40. SHARE INCENTIVE SCHEME

Options issued to personnel of Capitec Bank Limited

Balance at beginning of year 6 191 494 5 841 448

Options granted 773 056 1 150 000

Options cancelled and/or lapsed (35 500) (86 898)

Options exercised (1 769 744) (713 056)

Balance at year end 5 159 306 6 191 494

Weighted Weighted

Analysis of outstanding share options average strike average strike

by year of maturity price (R) Number price (R) Number

Financial year end

2007/08 - - 2.59 1 770 244

2008/09 8.57 1 010 625 8.54 1 015 625

2009/10 13.44 1 295 625 13.43 1 303 125

2010/11 18.20 1 308 264 15.22 1 121 250

2011/12 24.23 880 764 21.04 693 750

2012/13 32.82 474 514 30.70 287 500

2013/14 36.00 189 514 - -

18.15 5 159 306 11.51 6 191 494

Number Number

Shares available for settlement of options - -

Balance at beginning of year - -

Shares purchased during the year 1 769 744 713 056

Shares used for settlement of options (1 769 744) (713 056)

Options exercised (1 769 744) (713 056)

Settled in cash - -

Settled in shares (1 769 744) (713 056)

The Group offers share options to members of management who are able to make signifi cant contributions to the achievement of the

Group’s objectives. The exercise price of the granted options is equal to the weighted 30-day market price of the shares on the date

of the grant. Options are conditional on the employee completing the vesting period applicable to each group of options issued to that

employee. The Group has no legal or constructive obligation to repurchase or settle the options in cash.

2008 2007


Fair value Value taking Volatility on issue Expected into account Share price used in Number date ignoring vesting expected Year Strike on issuing valuation Dividend Year Risk-free of options vesting proportion vesting granted price date (1) yield maturing rate outstanding conditions (2) proportion R R % % % R’000 % R’000 2003/04 2.40 2.52 40 7.4 2008/09 10.1 176 875 126 98.9 124 2009/10 10.0 176 875 127 89.0 113

2004/05 5.73 5.30 28 3.7 2008/09 9.7 415 000 544 98.3 534 2009/10 9.8 415 000 614 88.5 544 2010/11 9.9 415 000 672 79.6 535 7.36 8.15 28 3.7 2008/09 8.5 12 500 30 94.5 29 2009/10 8.7 12 500 33 85.0 28 2010/11 8.9 12 500 35 76.5 27

2005/06 13.72 13.71 36 2.1 2008/09 7.8 18 750 75 99.1 74 2009/10 8.0 18 750 87 89.2 77 2010/11 8.2 18 750 97 80.3 77 2011/12 8.3 18 750 105 72.2 76 14.05 13.90 36 2.1 2008/09 7.5 368 750 1 462 97.7 1 428 2009/10 7.8 368 750 1 698 87.9 1 493 2010/11 8.0 368 750 1 897 79.1 1 501 2011/12 8.1 368 750 2 065 71.2 1 471 17.64 18.90 35 2.1 2008/09 7.2 18 750 110 95.7 105 2009/10 7.3 18 750 125 86.1 107 2010/11 7.5 18 750 137 77.5 106 2011/12 7.6 18 750 148 69.7 103

2006/07 30.20 31.00 36 1.4 2009/10 7.2 12 500 116 89.2 104 2010/11 7.3 12 500 135 80.3 109 2011/12 7.5 12 500 151 72.2 109 2012/13 7.6 12 500 165 65.0 107 30.59 31.05 36 1.4 2009/10 7.2 12 500 116 90.0 104 2010/11 7.3 12 500 135 81.0 109 2011/12 7.5 12 500 151 72.9 110 2012/13 7.6 12 500 165 65.6 108 30.73 34.00 36 1.3 2009/10 7.2 260 000 2 953 88.9 2 625 2010/11 7.3 260 000 3 369 80.0 2 696 2011/12 7.5 260 000 3 724 72.0 2 682 2012/13 7.6 260 000 4 030 64.8 2 611

2007/08 35.82 38.30 34 1.6 2010/11 8.0 163 000 1 950 79.7 1 554 2011/12 7.9 163 000 2 216 71.7 1 590 2012/13 7.8 163 000 2 441 64.5 1 575 2013/14 7.7 163 000 2 631 58.1 1 528 36.00 35.60 34 1.7 2010/11 8.1 13 889 138 80.1 111 2011/12 8.0 13 889 160 72.1 115 2012/13 7.9 13 889 179 64.8 116 2013/14 7.8 13 889 194 58.4 113 36.07 36.00 34 1.7 2010/11 8.2 7 500 77 80.3 62 2011/12 8.0 7 500 89 72.2 64 2012/13 7.9 7 500 99 65.0 64 2013/14 7.9 7 500 108 58.5 63 41.46 38.00 34 1.7 2010/11 9.1 5 125 51 73.9 37 2011/12 8.8 5 125 60 66.5 40 2012/13 8.6 5 125 68 59.8 41 2013/14 8.5 5 125 74 53.8 40

Grand total 5 159 306 35 932 75.5 27 139

41. SHARE OPTION EXPENSE

Data utilised in the valuation of options granted

The table below provides detail regarding the data used in the valuation of the share options to which the IFRS 2 has been applied.

Share options are refl ected on an equity-settled basis and are valued at issue date. The number of options that are expected to vest

are re-estimated on an annual basis.

(1) The share options granted prior to 28 February 2003 have been valued for disclosure purposes by applying a standard expected volatility

of 40% since the short listing history available at the valuation date for those share options was inappropriate for forecasting purposes.

The share options granted, to which IFRS 2 has been applied, have been valued by applying the expected volatility of the share price as

of December 2003 as it was considered more appropriate in the valuation because the shares were traded more frequently after the PSG

unbundling. (2) Average South African executive staff turnover of 10% p.a. used to estimate likelihood of vesting conditions realising. Will be re-estimated

in terms of IFRS 2 on an annual basis.




42. SHARE APPRECIATION RIGHTS

The Capitec Bank Group Employee Empowerment Trust is a 5% participant in the BEE consortium that purchased 10 million shares

in the Group in February 2007. Funding for the share purchase was mainly obtained from the IDC.

During February 2008 a communication was sent out by Capitec Bank on behalf of the Trust to employees of the bank, informing

them that each permanent employee, not participating in the share incentive scheme and employed at 29 February 2008, will benefi t

from cash disbursements, based on the cumulative increase in value of 200 Capitec Bank Holdings shares less funding costs, paid in

increments of 25% over four years. The payments will be made starting February 2010 and depend on their continued employment

by the Group.

The agreement constitutes a cash-settled equity-based compensation plan in terms of IFRS 2 and the trust is considered to be a

subsidiary of the Group.

At 29 February 2008 2 742 employees qualifi ed for the rights.

The value of the rights are estimated as follows:

43. DERIVATIVE FINANCIAL INSTRUMENTS

Included in other receivables are the following forward foreign exchange contracts

Notional Fair values

amount Assets Liabilities

R’000 R’000 R’000


Forward foreign exchange contracts

- Notional amounts in ZAR 5 946 290 -

- Notional amounts in US$ 777 - -


Nil

Forward foreign exchange contracts represent commitments to purchase foreign currency, including undelivered spot transactions

and were entered into to match corresponding expected future transactions to the amount of R5.9 million (2007: nil).

Group

Risk Portion

Year Year Number free rate Value of term

granted maturing of rights % per right expired % Value

2007/08 2009/10 137 100 9.8 6.85 0.0 -

2007/08 2010/11 137 100 9.4 7.44 0.0 -

2007/08 2011/12 137 100 9.2 7.87 0.0 -

2007/08 2012/13 137 100 9.1 8.20 0.0 -

548 400 9.4 7.59 0.0 -

The following assumptions were used to calculate the value of the rights:

Dividend yield 1.7 %

Volatility 34 %

Ex dividend share price 38.35

There was no income statement effect in the current year due to the fact that the cost is expensed over the term of the rights and

no portion of the vesting period related to the 2008 fi nancial year.

C a p i t e c B a n k H o l d i n g s L i m i t e d1 0 0

44. SHAREHOLDERS HOLDING MORE THAN 5% OF THE COMPANY’S ORDINARY SHARES


Number %

Shareholder of shares held shareholding

PSG Group Limited 28 593 016 34.90%

Limietberg Beleggings (Pty) Limited (previously Bielkor Beleggings (Pty) Limited) 11 700 108 14.28%

Coral Lagoon Investments 194 (Pty) Limited 10 000 000 12.21%

45. BLACK ECONOMIC EMPOWERMENT SHAREHOLDING


Number %

Shareholder of shares held shareholding

Coral Lagoon Investments 194 (Pty) Limited 10 000 000 12.21%

Thembeka Capital Limited (previously Arch Equity Investments Holdings Limited) 2 891 164 3.52%

12 891 164 15.73%


C a p i t e c B a n k H o l d i n g s L i m i t e d 1 0 1

Statutory Information

Number % of Number %

of shareholders total of shares interest

Analysis of shareholders holding ordinary shares

1 - 1 000 1 524 57.88% 672 401 0.82%

1 001 - 10 000 842 31.98% 2 829 449 3.45%

10 001 - 100 000 211 8.01% 5 739 687 7.01%

100 001 and over 56 2.13% 72 686 875 88.72%

2 633 100.00% 81 928 412 100.00%

Shareholder spread

Public shareholders 2 615 99.32% 27 040 996 33.00%

Holdings less than 5% 2 615 99.32% 27 040 996 33.00%

There are no public shareholders with holdings in excess of 5%

Non-public shareholders excluding directors and their associates 4 0.15% 38 593 016 47.11%

There are no non-public shareholders (excluding directors and their

associates holding less than 5%)

Holdings in excess of 5% 4 0.15% 38 593 016 47.11%

Coral Lagoon Investments 194 (Pty) Limited 1 0.04% 10 000 000 12.21%

PSG Group Limited 3 0.11% 28 593 016 34.90%

Directors (refer to page 53 for detail) 14 0.53% 16 294 400 19.89%

Directors of company or any subsidiaries 5 0.19% 441 459 0.54%

Associates of directors of company or any of its subsidiaries 10 0.38% 17 445 441 21.29%

Less holding included in Coral Lagoon Investments 194 (Pty) Limited (1) (0.04%) (1 592 000) (1.94%)

2 633 100.00% 81 928 412 100.00%

Analysis of shareholders holding non-redeemable, non-cumulative, non-participating preference shares (“preference shares”)

1 - 1 000 121 27.75% 72 646 4.31%

1 001 - 10 000 288 66.06% 709 362 42.12%

10 001 - 100 000 25 5.73% 660 361 39.21%

100 001 and over 2 0.46% 241 842 14.36%

436 100.00% 1 684 211 100.00%

Shareholder spread

Public shareholders 434 99.54% 1 643 312 97.57%

Holdings less than 5% 432 99.08% 1 401 470 83.21%

Holdings in excess of 5% 2 0.46% 241 842 14.36%

Mrs EDLH Meaker 1 0.23% 136 842 8.13%

Fraters Real Income Fund 1 0.23% 105 000 6.23%

Non-public shareholders

There are no non-public shareholders other than directors and their associates

Directors (refer to page 55 for detail) 2 0.46% 40 899 2.43%

None of the directors hold preference shares

Associates of directors of company or any of its subsidiaries 2 0.46% 40 899 2.43%

The trustees of the employee share scheme do not hold preference shares

436 100.00% 1 684 211 100.00%


Special Resolutions of Subsidiaries

Details of a special resolution passed by the company’s subsidiary during the fi nancial year under review are presented below:

Capitec Bank Limited

Acquisition of shares in holding company

It was resolved that the Bank be authorised as a general approval to acquire shares issued by its holding company, upon such terms and

conditions and in such amounts as the directors of the Bank may from time to time decide, but subject to the provisions of sections 85

to 89 of the Companies Act, 1973 (Act 61 of 1973) (“the Act”), the articles of association of the Bank and holding company respectively

and insofar as it may be applicable, the Listings Requirements from time to time of JSE Limited (“JSE”), provided always that :

• This general approval shall expire at the date of the Bank’s next annual general meeting in 2008, but not later than 15 November

2008;

• Purchases of securities in the listed holding company will only be effected through the order book operated by the JSE trading

system and done without any prior understanding or arrangement between the Bank and the counterparty (reported trades are

prohibited);

• An announcement must be published when the Bank has acquired, including the acquisition of shares in the holding company

through subscription, on a cumulative basis, 3% of the number of shares the holding company had in issue prior to the acquisition,

pursuant to which the aforesaid 3% threshold is reached, containing full details thereof as well as for each 3% in aggregate of the

initial number of that class acquired thereafter;

• Acquisitions by the Bank of shares in its holding company will be limited to an aggregate of 10% of the holding company’s issued

capital as at the date this authority is granted;

• The Bank will not purchase shares in the holding company at a price more than 10% above the weighted average of the market

value for the fi ve business days immediately preceding the date of acquisition;

• The Bank will at any point in time, if applicable, appoint only one agent to effect any purchase(s) of the holding company’s

shares;

• The Bank will only undertake an acquisition of the holding company’s shares if, after such acquisition, at least 500 public

shareholders as defi ned in the Listings Requirements of the JSE continue to hold at least 20% of that class of the company’s

issued shares;

• The Bank will not purchase any shares in its holding company during any prohibited period as defi ned in paragraph 3.67 of the

Listings Requirements of the JSE.

Amendment of articles of association

It was resolved that article 59 of the Bank’s articles of association be deleted in its entirety and replaced by the following new article 59:

“The board of directors of the Bank or a general meeting may from time to time declare and pay dividends to any one or more classes

of shareholders –

59.1 registered as such at a date which shall be not less than fourteen days after the date of publication of the announcement of the

declaration of the dividend on the basis that the register of shareholders may not be closed between the date of publication

of such announcement and the record date for the payment of the dividend; provided that

59.2.1 the sanction of a general meeting shall be required to pay any dividend declared either wholly or in part by the distribution of

such specifi c assets in such manner as the directors may determine, and

59.2.2 no greater dividend shall be declared by a general meeting than is recommended by the directors.”


Notice of Annual General Meeting

Notice is hereby given that the annual general meeting of the shareholders of Capitec Bank Holdings Limited (“Capitec” or “the

company”) will be held in the Granvin Room, L’Avenir Estate, R44 Klapmuts Road, Stellenbosch, on Wednesday, 28 May 2008 at

12:00 to transact the following business:

To consider and, if deemed fi t, approve the following resolutions as ordinary and special resolutions, as the case may be, with or

without modifi cation:

1. Ordinary resolution number 1

“Resolved that the audited annual fi nancial statements of the company and the group for the year ended 29 February 2008 be

approved.”


“Resolved that Mr KA Hedderwick, appointed to the board of the company on 10 December 2007, having retired in terms of article

80.2.1 of the company’s articles of association and, being eligible, has offered himself for re-election, be re-elected as an independent

non-executive director of the company.”

Summary curriculum vitae of Kevin Alexander Hedderwick: Mr Hedderwick is aged 55.

Mr Hedderwick is the chief operating offi cer of Famous Brands Limited. He has extensive retail business experience, including food,

beverages and franchising. He has held senior executive positions in a number of prominent companies including SAB, Distell and

Foodcorp. Prior to joining the Famous Brands group, he was managing director of Keg Franchising.

Mr Hedderwick is a member of the directors’ affairs and remuneration committees.


“Resolved that Mr PJ Mouton, appointed to the board of the company on 5 October 2007, having retired in terms of article 80.2.1 of

the company’s articles of association and, being eligible, has offered himself for re-election, be re-elected as a non-executive director

of the company.”

Summary curriculum vitae of Petrus Johannes Mouton: Mr Mouton, aged 31, obtained a BComm (Maths) from the University

of Stellenbosch (1997).

Mr Mouton is the managing director of Thembeka Capital (Pty) Limited, a majority black owned and controlled BEE investment

holding company. He serves as non-executive director on the boards of various companies including Erbacon Investment Holdings

Limited, an AltX listed company. He has been active in the investment and fi nancial services industries since 1999.

Mr Mouton is a member of the directors’ affairs and risk and capital management committees.


“Resolved that Mr JP van der Merwe, appointed to the board of the company on 27 September 2007, having retired in terms of

article 80.2.1 of the company’s articles of association and, being eligible, has offered himself for re-election, be re-elected as an

independent non-executive director of the company.”

Summary curriculum vitae of Jacobus Pieter van der Merwe: Mr Van der Merwe, aged 59, obtained a BA from the University of

Stellenbosch and qualifi ed as a CA(SA) (1974).

Mr Van der Merwe is an experienced retail banker. He commenced his career in banking as chief accountant at Boland Bank in 1974

after which he joined Volkskas Bank as general manager of fi nance in 1983. After the amalgamation of Bankorp and ABSA he was

appointed general manager of Commercial Bank, responsible for Absa Western Cape (1995 – 1999). In 2000 he was appointed

operating executive of Commercial Bank ABSA. In 2001 up to his retirement in 2006 he was an executive director in the ABSA group.

For the last two and a half years of his term as executive director he was responsible for group administration, group information

management, group IT, group credit and risk management.

Mr Van der Merwe is the chairman of the audit committee and a member of the directors’ affairs and risk and capital management

committees.



“Resolved that Prof MC Mehl, who retires by rotation in terms of article 77.1 of the articles of association of the company and, being

eligible, offers himself for re-election, be re-elected as an independent non-executive director of the company.”

Summary curriculum vitae of Merlyn Claude Mehl: Prof Mehl, aged 65, obtained a Ph.D. (Physics) from the University of Cape

Town (1985).

Prof Mehl is the executive chairman of Triple L Academy (Pty) Limited. He is widely known in education and development circles

in South Africa and internationally. He is recognised as a leader in his fi elds of expertise which include educational change and

development, especially in dealing with problems of poverty. His career includes having served as professor in physics at the

University of the Western Cape, chancellor of Peninsula Technicon and chief executive offi cer of the Independent Development

Trust. Prof Mehl serves on the boards of various companies.

He is the chairman of the risk and capital management committee and a member of the audit and directors’ affairs committees.


“Resolved that Mr JG Solms, who retires by rotation in terms of article 77.1 of the articles of association of the company and, being

eligible, offers himself for re-election, be re-elected as an independent non-executive director of the company.”

Summary curriculum vitae of Jan Georg Solms: Mr Solms, aged 52, obtained a BAcc from the University of Stellenbosch and

qualifi ed as a CA(SA) (1978).

Mr Solms has extensive experience in the fi nancial and securities environments and became a member of the JSE in 1981. Since

then he has been a partner/director of various stockbroking fi rms such as PLJ van Rensburg & Partners, Bosman & Co, Mechiel du

Toit, Solms & Co (which became Investec’s stockbroking division when it was sold to Investec Bank in 1995), Investec Securities and

both Independent Securities (Pty) Limited and Independent Securities Holdings (Pty) Limited, the latter two of which he is currently

an executive director.

Mr Solms is a member of the audit, remuneration and directors’ affairs committees.


“Resolved that the directors’ remuneration for the fi nancial year ending on 28 February 2009, including payment thereof in accordance

with the scale of remuneration as set out below, be authorised:

Chairman of the board* R 672 000

Board membership** R 84 000

Chairman of any board committee** R 84 000

Committee membership** R 28 000

Notes:

* The chairman of the board is paid a retainer as chairman of the board and receives no further payment for membership of

committees; and

** Non-executive directors receive a retainer fee per membership of the board and each of the board committees. No fee is paid in

respect of the directors’ affairs committee.”


“Resolved that Messrs PricewaterhouseCoopers Inc. be re-appointed as auditors of the company to hold offi ce until the conclusion

of the next annual general meeting of the company.”


“Resolved that the directors be authorised to determine the remuneration of the auditors.”



“Resolved that the payment of a dividend of 75 cents per share, payable in cash on Tuesday, 17 June 2008 to the shareholders of

the company, recorded in the register on Friday, 13 June 2008, be and is hereby authorised. The last day to trade to be eligible to

receive a dividend will be Friday, 6 June 2008.”


“Resolved that 8 192 841 of the unissued ordinary shares in the authorised ordinary share capital of the company and all the

non-redeemable, non-cumulative, non-participating preference shares in the authorised but unissued preference share capital of

the company be placed under the control of the directors until the next annual general meeting of the company and that they be

hereby authorised to allot and issue any such shares as they may deem fi t, subject to the Companies Act, 1973 (Act 61 of 1973), as

amended, the articles of association of the company and the Listings Requirements of the JSE Limited.”


“Resolved that, subject to ordinary resolution number 11 being approved, the directors be hereby authorised as a general approval

to allot and issue ordinary shares, options or convertible securities that are convertible into an existing class of equity securities for

cash without restriction, as they may deem fi t, subject to the Companies Act, 1973 (Act 61 of 1973), as amended, the articles of

association of the company and the Listings Requirements of the JSE Limited (“JSE”), provided that:

• This general approval shall expire at the date of the company’s next annual general meeting in 2009 or 28 August 2009, whichever

is the earlier;

• Any such issue will only be securities of a class already in issue, or limited to such securities or rights that are convertible into a

class already in issue;

• The securities will be issued only to the public as defi ned in the Listings Requirements of the JSE and not to related parties;

• During the period permitted in terms of this general approval:

– the general issues of shares of a specifi c class in the aggregate will not exceed 10% of the company’s issued share capital in

that class at the date of the fi rst such issue;

– the securities of a particular class will be aggregated with the securities that are compulsorily convertible into securities of that

class, and, in the case of the issue of compulsorily convertible securities, aggregated with the securities of that class into which

they are compulsorily convertible;

– the number of securities which may be issued, shall be based on the number of securities of that class in issue, added to those

that may be issued in future at the date of such application;

(1) less any securities of the class issued or to be issued in future arising from options/convertible securities issued during the

current fi nancial year;

(2) plus any securities of that class to be issued pursuant to a rights issue (which has been announced, is irrevocable and

is fully underwritten), or acquisition (which has had fi nal terms announced) which may be included as though they were

securities in issue at the date of application;

• In determining the price at which an issue of shares may be made in terms of this authority, the maximum discount permitted

will be 10% of the weighted average traded price as determined over the 30 business days prior to the date that the price of

the issue is agreed between the company and the party subscribing for the securities. The JSE will be consulted for a ruling if

the company’s securities have not traded in such 30 business day period; and

• At least 75% of the shareholders present in person or by proxy at the annual general meeting cast their vote in favour of this

resolution.”


13. Special resolution number 1

“Resolved that the company be authorised as a general approval to repurchase any of the ordinary shares issued by the company

upon such terms and conditions and in such amounts as the directors may from time to time decide, but subject to the provisions of

sections 85 to 88 of the Companies Act, 1973 (Act 61 of 1973), as amended, the Listings Requirements of the JSE Limited (“JSE”)

and the articles of association of the company, provided always that:


is the earlier;

• The repurchase will only be effected through the order book operated by the JSE trading system and done without any prior

understanding or arrangement between the company and the counter party (reported trades are prohibited);

• An announcement must be published when the company has acquired, on a cumulative basis, 3% of the number of shares of

the relevant class it had in issue prior to the acquisition, pursuant to which the aforesaid 3% threshold is reached, containing full

details thereof as well as for each 3% in aggregate of the initial number of that class acquired thereafter;

• Aggregate repurchases under this general authority will not exceed 20% of the company’s issued share capital of that class in

any one fi nancial year as at the date this authority is granted;

• The company will not make the repurchases at a price more than 10% above the weighted average of the market value of the

securities of that class in issue for the fi ve business days immediately preceding the date on which the transaction is effected. The

JSE will be consulted for a ruling if the company’s securities have not traded in such fi ve business day period;

• The company will, at any point in time, appoint only one agent to effect any repurchase(s) on the company’s behalf;

• The company will only undertake a general repurchase of securities if, after such repurchase, at least 300 public shareholders as

defi ned in the Listings Requirements of the JSE continue to hold at least 20% of the company’s issued ordinary shares;

• The company will not repurchase its shares during any prohibited period as defi ned in paragraph 3.67 of the Listings Requirements

of the JSE unless a repurchase programme is in place in respect of which the dates and quantities of ordinary shares to be traded

during such period are fi xed and full details of such programme have been disclosed in an announcement over SENS prior to the

commencement of the prohibited period.”

14. Special resolution number 2

“Resolved that the company, insofar as it may be necessary to do so, hereby approves, as a general approval, and authorises the

acquisition by any subsidiary of the company of shares of any class issued by such subsidiary and/or by the company upon such

terms and conditions and in such amounts as the directors of such subsidiary/ies may from time to time decide, but subject to the

provisions of sections 85 to 89 of the Companies Act, 1973 (Act 61 of 1973), as amended, the articles of association of the company

and insofar as they may be applicable, the Banks Act, 1990 (Act 94 of 1990) and the Listings Requirements of the JSE Limited

(“JSE”), provided always that:


is the earlier;

• A repurchase of securities in the company will only be effected through the order book operated by the JSE trading system

and done without any prior understanding or arrangement between the company and the counter party (reported trades are

prohibited);

• An announcement must be published when the subsidiary has acquired on a cumulative basis, 3% of the number of shares of that

class which the company had in issue prior to the acquisition, pursuant to which the aforesaid 3% threshold is reached, containing

full details thereof as well as for each 3% in aggregate of the initial number of that class acquired thereafter;

• Acquisitions by any company of its own securities under this general authority may not exceed 20% in the aggregate of the

acquiree company’s issued share capital of that class in any one fi nancial year as at the date this authority is granted and in the

case of the subsidiary acquiring shares in the company limited to an aggregate of 10% of the company’s issued capital of that

class as at the date this authority is granted;


• The subsidiaries will not acquire securities in the company at a price more than 10% above the weighted average of the market

value of securities of that class for the fi ve business days immediately preceding the date of acquisition. To the extent applicable,

the JSE will be consulted for a ruling if the company’s securities have not traded in such fi ve business day period;

• The subsidiaries will, at any point in time, appoint only one agent to effect any purchase(s) of the company’s securities if

applicable;

• The subsidiaries will only undertake an acquisition of the company’s securities if, after such acquisition at least 300 public

shareholders as defi ned in the Listings Requirements of the JSE continue to hold at least 20% of the company’s issued ordinary

shares;

• The subsidiaries will not purchase any shares in the company during any prohibited period as defi ned in paragraph 3.67 of

the Listings Requirements of the JSE unless a repurchase programme is in place in respect of which the dates and quantities

of ordinary shares to be traded during such period are fi xed and full details of such programme have been disclosed in an

announcement on SENS prior to the commencement of the prohibited period.”

15. Other business

To transact such other business as may be transacted at an annual general meeting.

EXPLANATORY NOTES

The reasons for and effect of the two special resolutions set out above are:

Special resolution number 1 – General authority to purchase own shares

The reason for this special resolution is that the company seeks a general authority to repurchase its shares in the market subject

to specifi c statutory requirements. The directors have no present intention of making any purchases under this authority but believe

that the company should retain the fl exibility to take action if future purchases could be considered desirable and in the best interest

of shareholders.

In terms of the Listings Requirements of the JSE Limited (“JSE”) any general repurchase by the company must, inter alia, be

limited to a maximum of 20% of the company’s issued share capital of that class in any one fi nancial year at the time the authority

is granted.

The directors intend to use this authorisation only to repurchase if there is in their opinion no doubt that, after such repurchase:

• The company and the Group will each be able to repay its debt as it becomes due in the ordinary course of business for a period

of twelve months from the date of this annual general meeting;

• The assets of the company and the Group, valued in terms of Generally Accepted Accounting Practice, will respectively exceed

the liabilities of the company and the Group for a period of twelve months from the date of this annual general meeting; and

• The share capital and reserves and working capital of the company and the group will be adequate for ordinary business purposes

for a period of twelve months from the date of this annual general meeting.

General information in respect of directors (page 16), major shareholders (page 100), directors’ interests in securities (page 53 and 55),

material changes (page 56) and the share capital of the company (page 80) is contained in the annual report to which this notice is

attached.

The directors, whose names are given on page 16 of the annual report, are not aware of any legal or arbitration proceedings,

including proceedings that are pending or threatened, that may have or have had in the recent past, being at least the previous

twelve months, a material effect on the fi nancial position of Capitec.

The directors, whose names are given on page 16 of the annual report, collectively and individually accept full responsibility for the

accuracy of the information given and certify that to the best of their knowledge and belief there are no facts that have been omitted

which would make any statement false or misleading, and that all reasonable enquiries to ascertain such facts have been made and

that this resolution contains all information required by the JSE Listings Requirements.


The effect of this special resolution, if approved, is to grant a general authority to the directors of the company to repurchase its

shares in the market subject to the provisions of the Companies Act, 1973 (Act 61 of 1973), as amended, the articles of association

of the company and the Listings Requirements of the JSE, where applicable.

Special resolution number 2 – General authority to subsidiaries to acquire shares

The reason for this special resolution is that the company seeks a general authority to empower directors of subsidiaries to resolve

that the said subsidiaries acquire shares issued by such subsidiaries and/or by the company in terms of the Companies Act 1973

(Act 61 of 1973) (“the Act”), their respective articles of association and, where applicable, the Banks Act, 1990 (Act 94 of 1990) (“the

Banks Act”) and the Listings Requirements of the JSE Limited (“JSE”).

The directors have no present intention of making any acquisition under this authority but believe that its subsidiaries should retain

the fl exibility to take action if future acquisitions could be considered desirable and in the best interests of shareholders. One such

eventuality could be the acquisition of shares in the company for delivery in terms of the Capitec Bank Holdings Share Trust (“the

share incentive scheme”), the terms of which have been approved by shareholders at a general meeting held on 7 February 2002.

In terms of the Act, subsidiaries may acquire shares in the company to a maximum of 10% in the aggregate of the number of issued

shares of the company. In terms of the Listings Requirements of the JSE any general acquisition by a company of its listed shares

must, inter alia, be limited to a maximum of 20% of that class of the issued share capital of the acquiree company in any one fi nancial

year at the time the authority is granted.

The authorisation to subsidiaries to acquire their own shares or shares in the company will only be exercised by the directors of the

subsidiaries if, at the discretion of the board of the company, circumstances should merit and if there is in their opinion no doubt that,

after such acquisition:

• The company, relevant subsidiaries and group will each be able to repay its debts as it becomes due in the ordinary course of

business for a period of twelve months from the date of this annual general meeting;

• The assets of the company, relevant subsidiaries and the Group valued in terms of Generally Accepted Accounting Practice, will

respectively be in excess of the liabilities of the company, relevant subsidiaries and the group for a period of twelve months from

the date of this annual general meeting; and

• The share capital, reserves and working capital of the company, relevant subsidiaries and the group will be suffi cient to meet the

respective needs of the company, relevant subsidiaries and the group for a period of twelve months from the date of this annual

general meeting.

General information in respect of directors (page 16), major shareholders (page 100), directors’ interests in securities (page 53 and 55),

material changes (page 56) and the share capital of the company (page 80) is contained in the annual report to which this notice is

attached.

The directors, whose names are given on page 16 of the annual report are not aware of any legal or arbitration proceedings,

including proceedings that are pending or threatened, that may have or have had in the recent past, being at least the previous

twelve months, a material effect on the fi nancial position of Capitec.

The directors, whose names are given on page 16 of the annual report, collectively and individually accept full responsibility for the

accuracy of the information given and certify that to the best of their knowledge and belief there are no facts that have been omitted

which would make any statement false or misl eading, and that all reasonable enquiries to ascertain such facts have been made and

that this resolution contains all information required by the Listings Requirements of the JSE.

The effect of this special resolution, if approved, is to grant a general authority to the directors of the company’s subsidiaries to

acquire shares issued by such subsidiaries and/or by the company, subject to the provisions of the Act, the articles of association of

the subsidiaries and the company and where applicable, the Banks Act and the Listings Requirements of the JSE.

Special resolution numbers 1 and 2 are renewals of resolutions approved at the previous annual general meeting held on 30 May 2007.


VOTING

Shareholders entitled to attend and vote at the annual general meeting may appoint one or more proxies to attend, speak and vote

thereat in their stead. A proxy need not be a member of the company. A form of proxy, in which are set out the relevant instructions

for its completion, is enclosed for use by a certifi cated or dematerialised shareholder with own name registration who wishes to be

represented at the annual general meeting. Completion of a form of proxy will not preclude such shareholder from attending and

voting (in preference to that shareholder’s proxy) at the annual general meeting.

Proxy forms must be delivered at or posted to Computershare Investor Services (Pty) Limited, 70 Marshall Street, Johannesburg,

2001 (PO Box 61051, Marshalltown, 2107) to be received by no later than 12:00 on Monday, 26 May 2008.

Shareholders present in person, by proxy or by authorised representative (“delegates”) shall, on a show of hands, have one vote

each and on a poll, will have one vote in respect of each share held. It is intended that voting will be conducted electronically by poll.

Upon arrival, delegates are registered, linked to their respective profi les on the share register and given an electronic keypad with

which to cast their respective votes. Upon voting, a message is displayed on the keypad screen, confi rming that the vote has been

registered. Results are displayed on an overhead screen.

Benefi cial owners who have dematerialised their shares through a Central Securities Depository Participant (“CSDP”) or stockbroker,

other than those whose shares are registered in their in own name, must provide the CSDP or stockbroker with their voting instruction.

Benefi cial owners must verify with the relevant CSDP or stockbroker the cut-off time to lodge such voting instruction. Alternatively,

they must request the CSDP or stockbroker to provide them with a letter of representation should they wish to attend the meeting in

person in terms of the custody agreement entered into between the benefi cial owner and the CSDP or stockbroker.

By order of the board

C G van Schalkwyk

Company Secretary

6 May 2008


FORM OF PROXY

Capitec Bank Holdings Limited (Incorporated in the Republic of South Africa)

(Registration number 1999/025903/06) (“Capitec” or “the Company”)

(JSE share code: CPI ISIN: ZAE000035861)

For use of shareholders who are:

(1) registered as such and who have not dematerialised their Capitec ordinary shares; or

(2) hold dematerialised Capitec ordinary shares in their own name,

at the annual general meeting of shareholders of the company to be held in the Granvin Room, L’Avenir Estate, R44 Klapmuts Road, Stellenbosch, on

Wednesday, 28 May 2008 at 12:00.

Benefi cial owners who have dematerialised their shares through a CSDP or stockbroker, other than those in “own name” must provide the CSDP or

stockbroker with their voting instruction. Alternatively, they must request the CSDP or stockbroker to provide them with a letter of representation should they

wish to attend the meeting in person in terms of the custody agreement entered into between the benefi cial owner and the CSDP or stockbroker.

I/We (Full names in BLOCK LETTERS please)

of (address)

being the registered holder(s) of ordinary shares hereby appoint:

1. of or failing him/her,

2. of or failing him/her,

3. the chairman of the meeting, as my proxy to vote on my/our behalf at the annual general meeting to be held on 28 May 2008 and at each adjournment

thereof for purposes of considering and, if deemed fi t, passing, with or without modifi cation, the ordinary and special resolutions to be proposed thereat and

to vote for and/or against the resolutions and/or abstain from voting in respect of the ordinary shares registered in my/our name/s in accordance with the

following instructions (see notes on the opposite page):

Ordinary resolutions

1. Approve the annual fi nancial statements

2. Re-elect Mr KA Hedderwick as a director

3. Re-elect Mr PJ Mouton as a director

4. Re-elect Mr JP van der Merwe as a director

5. Re-elect Prof MC Mehl as a director

6. Re-elect Mr JG Solms as a director

7. Approve the directors’ remuneration for the fi nancial year ending on 28 February 2009 including payment thereof

8. Re-appoint the auditors

9. Authorise the directors to determine the auditors’ remuneration

10. Authorise payment of a cash dividend of 75 cents per share

11. Approval to place 8 192 841 of the unissued ordinary shares in the authorised ordinary share capital of the company and all the non-redeemable, non-cumulative, non-participating preference shares in the authorised but unissued preference share capital of the company under the control of the directors

12. General approval to allot and issue ordinary shares for cash

Special resolutions

13. General approval to the company to repurchase shares issued by the company

14. General approval to any subsidiary of the company to acquire shares issued by such subsidiary and/or by the company

(Indicate instruction to proxy by way of a cross in the space provided above)

Signed at on this day of 2008.

Signature(s)

Assisted by (where applicable) (state capacity and full name)

Each Capitec shareholder is entitled to appoint one or more proxy(ies) (who need not be a shareholder(s) of the company) to attend, speak and vote in his/

her stead at the annual general meeting.

In favour of Against Abstain

Number of shares


NOTES TO FORM OF PROXY

1 A Capitec shareholder may insert the name of a proxy or the names of two alternative proxies of the shareholder’s choice in the space(s)

provided, with or without deleting the chairman of the annual general meeting. The person whose name appears fi rst on the form of proxy

and who is present at the annual general meeting will be entitled to act as proxy to the exclusion of those whose names follow.

2. A Capitec shareholder’s instructions to the proxy must be indicated clearly by the insertion of the relevant number of ordinary shares to be

voted on behalf of that member in the appropriate box provided. Failure to comply with the above will be deemed to authorise the chairman

of the annual general meeting, if he/she is the authorised proxy, to vote in favour of the resolutions at the annual general meeting, or

any other proxy to vote or to abstain from voting at the annual general meeting as he/she deems fi t, in respect of all the ordinary shares

concerned. A shareholder or his/her proxy is not obliged to use all the votes exercisable by the shareholder or his/her proxy, but the total of

the votes cast and in respect whereof abstentions are recorded may not exceed the total of the votes exercisable by the shareholder or his/

her proxy.

3. When there are joint registered holders of any shares, any one of such persons may vote at the meeting in respect of such shares as if

he/she is solely entitled thereto, but, should more than one of such joint holders be present or represented at any meeting, that one of

the said persons whose name stands fi rst in the register in respect of such shares or his/her proxy, as the case may be, shall alone be

entitled to vote in respect thereof. Several executors or administrators of a deceased member, in whose name any shares stand, shall

be deemed joint holder thereof.

4. Every member present in person or by proxy shall, on a poll, have one vote for every ordinary share held, whereas on a show of hands,

members present in person, by proxy or by authorised representative shall have one vote each. It is intended that voting at the annual

general meeting will be conducted by poll, electronically.

5. Forms of proxy must be completed and returned to be received by the transfer secretaries of the company, Computershare Investor

Services (Pty) Limited, 70 Marshall Street, Johannesburg, 2001 (PO Box 61051, Marshalltown, 2107), by no later than 12:00 on Monday,

26 May 2008.

6. Any alteration or correction made to this form of proxy must be signed in full by the signatory/ies and not initialled.

7. Documentary evidence establishing the authority of a person signing this form of proxy in a representative capacity must be attached to

this form of proxy unless previously recorded by the company’s secretaries or waived by the chairman of the annual general meeting.

8. The completion and lodging of this form of proxy will not preclude the relevant shareholder from attending the annual general meeting and

speaking and voting in person thereat to the exclusion of any proxy appointed in terms hereof, should such shareholder wish to do so.

9. The chairman of the annual general meeting may reject or, provided that he is satisfi ed as to the manner in which a member wishes

to vote, accept any form of proxy which is completed other than in accordance with these instructions. Benefi cial owners who have

dematerialised their shares through a CSDP or stockbroker, other than those in own name must provide the CSDP or stockbroker with their

voting instruction. Benefi cial owners must verify with the relevant CSDP or stockbroker the cut-off time to lodge such voting instruction.

Alternatively, they must request the CSDP or stockbroker to provide them with a letter of representation should they wish to attend the

meeting in person in terms of the custody agreement entered into between the benefi cial owner and the CSDP or stockbroker.

C a p i t e c B a n k H o l d i n g s L i m i t e d11 2 e dC a p i t e c B a n k H o l d i n g s L i m i t e11 2

Administration and Addresses

Financial year end

Profi t announcement

Annual report

Annual general meeting

Interim report

Last date to trade to be considered

for the dividend payment

Record date in respect of the

dividend payment

Payment date

Share certifi cates may not be

dematerialised or rematerialised,

both days inclusive

JSE Code:

ISIN:

29 February 2008

2 April 2008

May 2008

28 May 2008

September 2008

Ordinary Dividend

Friday, 6 June 2008

Friday, 13 June 2008

Tuesday, 17 June 2008

9 to 13 June 2008

CPI

ZAE 00 0035861

Shareholders’ Calendar

1999/025903/06

PricewaterhouseCoopers Inc

AP du Plessis

KA Hedderwick (appointed 10 December 2007)

MS du P le Roux (chairman)

TD Mahloele (appointed 1 April 2007)

MC Mehl (Prof)

NS Mjoli-Mncube (Ms)

JF Mouton (resigned 4 October 2007)

PJ Mouton (appointed 5 October 2007)

CA Otto

JG Solms

R Stassen

JP van der Merwe (appointed 27 September 2007)

J van Zyl Smit (dr) (resigned 26 September 2007)

CG van Schalkwyk

10 Quantum Street

Techno Park

Stellenbosch

7600

PO Box 12451

Die Boord

Stellenbosch

7613

www.capitecbank.co.za

Registration

number

Auditors

Directors

Secretary

Registered

address

Postal

address

Website

Capitec Bank Holdings Limited

Free State

Northern Cape

KwaZulu-Natal


Change08/07


Northhern Cape

National Network

331 BranchesLimpopo

Mpumalanga

33666666

2233Gauteng

79

1199North West

46Western Cape

Eastern Cape




Company Structure




Group 34.9% sBEE 15.99%


100% Capitec Bank

Limited1980/003695/06


(Pty) Ltd

100% Other






Incentive Trust


2008 2007 2006 2005 Operations

Profi tability



Tax Rm (95) (76) 25% (51) (32)



shareholders

• Basic Rm 212 159 33% 115 67

• Headline Rm 212 160 32% 116 70



Earnings per share


• Headline Cents 259.0 222.4 16% 165.0 100.9



Dividends per share

• Interim Cents 25.0 20.0 25% - -


Dividend cover x 2.6 2.8 (7%) 3.7 3.4





Other Rm 285 232 23% 207 217


Deposits Rm 1 528 897 71% 595 281

Other Rm 191 177 7% 92 51






Share options






Employees 2 800 2 129 32% 1 901 1 708

Active clients ’000 1 371 1 010 36% 706 513

Own ATMs 328 264 24% 210 180




SalesLoans




• Loan revenue Rm 1 284 1 001 28% 768 534



Deposits




Highlights

Contents



2 The Market







35 Annexure A


36 Annexure B







110 Form of Proxy









70

R’m

116

0706

05

160

08

212

He

ad

line

ea

rnin

gs

513

‘000

706

1010

1371

Act

ive

clie

nts

0807

0605

Re

turn

on

eq

uity

16

%

23

26

22

0807

0605


Annual Report 2008

Documents

Annual Report 2008 - Capitec Bank · 1 Key Performance Indicators and Company Structure ... Annual Report 2008. Highlights ... Net loans and advances Rm 2 019 803 151% 455 208