Taking a look at Mercantile Bank and its focus on business banking in South Africa , Alec Hogg spoke to Karl Kumbier, CEO of the bank. Mercantile is 100% owned by Portuguese bank, Caixa, which is the largest bank in Portugal and what is clear from both European and South African perspectives is that Africa truly is the next great frontier in terms of entrepreneurialism, investment and synergy seeking. Mercantile’s story is an uplifting one that speaks to the reward of sticking to a strategy, and servicing a market that is under-represented, in this case established SME’s looking for long-term growth where they may not always find the support they need from the ‘Big Four’. Is Mercantile swooping into a space that has a growing need for a focused business banking service? – LF
ALEC HOGG: Mercantile is a Bank that specialises in providing financial products and services to entrepreneurs. You might remember. It was listed on the JSE. It recently delisted and it would be interesting to find out exactly what’s happened to this business and why the Portuguese who own it, are still so positive about South Africa. Karl Kumbier, the Chief Executive of Mercantile Bank is with us in the studio. Karl, it’s nice to have you here.
KARL KUMBIER: Thanks Alec, it’s great to be here.
ALEC HOGG: When did you guys delist?
KARL KUMBIER: We delisted two years ago – May 2012.
ALEC HOGG: And life after not being on the JSE…
KARL KUMBIER: It was quite an interesting decision. Before we delisted, we had probably been listed for about 12 years, Caixa Geral de Depösitos (the largest bank in Portugal) owned 92 percent of us at that stage. Free float was only eight percent. We didn’t need capital. We had twice as much capital as we needed from a regulatory point of view. The board got together and said ‘do we need to remain listed’. We delisted and we did it through our share buy-backs. We bought back our shares and Caixa now owns 100 percent of Mercantile.
ALEC HOGG: And they haven’t repatriated any of that excess capital.
KARL KUMBIER: No, not at all. I must say they’ve been quite a good shareholder from that perspective. Over the last ten years, they allowed us to build up quite a nice capital base and we paid our first dividend, funnily enough, two years ago but it was a nominal amount. It was 20 percent of our nett profit after tax, so it wasn’t a huge amount. Every year, going forward, we’ll probably do something similar.
ALEC HOGG: What do they see in this economy that others don’t?
KARL KUMBIER: Funnily enough, last year was the first time a CEO of Caixa had actually visited South Africa, to visit Mercantile. The CEO came out with the Deputy CEO, and the Chairman of the Group, and what’s exciting for them is that Portugal Bank was obviously going through its own issues and what they’re seeing is that many of the Portuguese businesses now have to export or move into other parts of the world, and Africa being a really exciting opportunity. What they understand and saw for the first time is that if you want to operate in Africa (or if you want to operate out of South Africa), it has to be a springboard. They currently own the second-largest bank in Mozambique, about the fifth largest in Angola and coupled with South Africa, it’s a really nice niche here – the Southern African banking group. There’s currently a big drive to try to capture trade flows between Mozambique, Angola, and South Africa.
For example, if you have a business in South Africa that wants to invest in Mozambique, then what we’ll do is we’ll put them in touch with BCI in Mozambique. They’ll open up accounts there, borrow what they need to borrow, get away from facilities, and whenever there’s a trade flow, we’ll do the foreign exchange on our side, so it’s a great opportunity for Caixa.
ALEC HOGG: Indeed, and having the brand name in South Africa and the focus that you’ve always had on entrepreneurs, you are starting to get a little sharper in that area. It was interesting to see one of your recent releases that came across saying that you’re actually putting together entrepreneurial centres. Exactly, what is that?
KARL KUMBIER: At the end of the day, we’re a business and commercial bank, so our sole purpose in life is to grow entrepreneurs. As the only real niche business bank in the country, we’re able to offer every single product that a big bank can offer, so it doesn’t matter whether it’s electronic banking or commercial property loans. There’s nothing we don’t offer and we’ve been dealing with SME’s/entrepreneurs for 49 years. We’ve been in this country for 49 years already, so the exciting part for Mercantile now is we have lots of capital.
We have a clean lending book. We have a brand new core banking system. We want to grow our base. We never want to be a big bank because you’re going to lose touch with the customer and our whole value proposition is around relationships with our customers. We have really good relationships. Part of our growth strategy is to increase the size of our footprint.
We currently have 15 business centres around the country and we want to increase that by about ten. However, it’s quite an expensive channel (to build a new business centre), so we put on our own entrepreneurial hats – if you want to call it that and we gave a challenge to our team, saying ‘how do we design two business centres for the price of one’. They came back with a concept, which is totally unique in this country (it’s the first in this country). I’ll definitely show you the business centre property. It’s just around the corner here, but you walk in. It’s totally open plan. There are two meeting rooms there, which our customers can use for themselves if they want to go and reach one of their own customers. All our staff our multi-skilled. The other big issue was cash – depositing and withdrawing cash.
We’ve imported a device from Japan, which has been set up in way that allows you to take any amount of cash in any order. It doesn’t have all R100.00’s and R200.00’s together. It counts ten notes per second, you put it on top, it counts and drops it into a Category 4 safe, your account’s credited, and you walk out. I’ll give you an example. Some of our customers…the one in Pretoria owns a big retail outlet. They used to take an hour-and-a-half to count their cash every day because it was all in different order. Now it takes ten minutes. They walk in and out, and their account is credited.
ALEC HOGG: Where is your sweet spot? Whom are you targeting? Clearly, a Portuguese-owned Mercantile Bank…one thinks about small businesses, engineering companies, and cafés, etcetera.
KARL KUMBIER: We’ll target anyone who has their own business. If there’s a person behind the business – an entrepreneur – that’s our target market. It doesn’t matter whether you turn over R5m per year or R2bn per year, as long as there’s a person behind it.
ALEC HOGG: And how do you make a difference in their lives? For instance, why would I take my little business, come, and do banking with you, rather than with FNB?
KARL KUMBIER: At the end of the day, at the big banks you’d deal with the relationship manager. That’s what’s so exciting for Mercantile. If there’s one segment of the market that’s badly serviced, it’s the business-banking segment. If you speak to anyone who has their own business – all your friends etcetera – they’ll tell you that the turnaround times are slow, you’re dealing with call centres, your relationship manager changes every six months, and with us you have one, single point of contact. Every single customer has a relationship manager and that relationship managers deals with everything for you. In the big banks, if you want to do a commercial property loan, they bring in a specialist. If you want to do asset finance, they’ll bring in a specialist whereas with us, one person will sort out everything: your personal home loan, your commercial property loan, and your working capital facilities so there’s a single point of contact and we have a very flat structure. If someone wants to pick up the phone and phone me (as Head of Commercial Banking), it’s not an issue. We’ll sit down and we’ll make things work.
ALEC HOGG: And you have capital, which I think is something else entrepreneurs like to hear: if they have a good idea, they can borrow money from you.
KARL KUMBIER: Exactly. If I use some of the examples of customers who have borrowed from us…  In addition, there’s a lot of focus on start-up businesses and we don’t touch start-up businesses. To us, it’s too high a risk. Eight out of ten start-up business fail. There’s not enough emphasis on established SME’s. If you want to create jobs in this country, think about it. You have people who have already gone through the hard yards to start up their business. They’re now established, but they need a little bit of help and we are able to sit with our customers, and structure a solution that actually suits their needs and allows them to take their business to the next level. We have examples. One start-up bank (about six years ago) moved across to us. They had 2000 employees at that stage. They now have 12,000 employees. Businesses that started with three employees now have 30.
ALEC HOGG: Karl, just to close off with, are you seeing that the guys that you bank – in other words, these entrepreneurs – are looking at the stock market, saying it’s high, and they want to start listing more of the businesses? What’s the mood there?
KARL KUMBIER: Funnily enough, there is one that’s going to be listing but I think listing is a big strategy. Entrepreneurs typically like to control their own destiny, so they don’t like to give their money to someone else to manage. Many of them will buy properties and shopping centres etcetera, to ensure they have a pension one day. Once again, that’s where they come back to us and we’ll sit with them. For example, if they’re operating at a factory, they’re paying rent. Why pay rent? Why don’t they rather buy the building? We’ll provide the finance and in ten years’ time, it’s paid off and it’s a pension. For the rest of their lives, they’re going to earn that rental, so we find that many of them build up their own property portfolios.
ALEC HOGG: Fascinating. Karl Kumbier is the Chief Executive of Mercantile Bank.
