COMPETITION TRIBUNAL
REPUBLIC OF SOUTH AFRICA
Case No: 27/LM/May01
In the large merger between:
BoE Bank Limited
and
Credcor Limited
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Reasons for the Competition Tribunal’s Decision
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APPROVAL
On 4 July 2001 the Competition Tribunal issued a Merger Clearance Certificate
approving the merger between BoE Bank Limited and Credcor Limited without
conditions in terms of section 16(2)(a). The reasons for the approval of the merger appear
below.
The merger transaction
1. The primary acquiring firm, BoE Bank Limited (“BoE”), is acquiring the 57.28%
shareholding in Credcor Limited (“Credcor”), t he primary target firm 1, from the
three controlling shareholders, Flack Family Trust, Tanglewood Investments (Pty)
Ltd and Ethos Private Equity. BoE currently holds 13.79% of the shares in
Credcor.
2. In addition, BoE intends to acquire the entire issued sha re capital of Credcor by
means of a Scheme of Arrangement, in terms of Section 311 of the Companies
Act 2 failing which by means of a Section 440 offer. However acquisition of the
57.28% shareholding is not contingent on realization of either of these two
options, and BoE will still acquire this (majority) shareholding should neither
option be implemented.
3. Following the merger, Credcor will ultimately be constituted as a division of BoE
Bank.
1 Credcor Limited is a holding company for a group of companies trading as Consumer Credit. 2 Act 61 of 1973
EVALUATING THE MERGER
The relevant market
4. Both parties are active within the general financial services industry in South
Africa, however, for the most part, cater to different categories of clients and offer
different products.
5. BoE primarily caters to the business and corporate market, as well as the middle
to high income individual market. In the business sector, the Group primarily
targets the top 300 listed corporates/institutions and medium -sized corporates,
with a small customer base coming from the informal sector. Within the
individual sector, the Gro up targets high net worth, middle income and mass
market consumers. The mass market segment contributes less than 1% to BoE’s
total earnings. 3
6. BoE’s products range from investment banking services to treasury to life
insurance to offshore retail to secu red finance. This is not an exhaustive list of its
spectrum of products, such a list would prove too detailed and irrelevant for the
purposes of this analysis.
7. BoE (through PEP Bank), has a small presence in the emerging market, targeting
the lower income segment of the market. PEP Bank is a Joint Venture between
BoE Bank and Pepkor. BoE has licensed the “PEP” name from Pepkor, but
Pepkor has no equity in PEP, which is merely a division of BoE Bank.4
8. BoE previously held 18% of the ordinary shares in Afri can Bank Investments
Limited (“Abil”), competitor of PEP and Credcor, which it has since sold. It has
recently acquired a company called Cashbank which provides housing loans to
clients in the lower income market. Credcor does not provide housing loans. T hus
to the extent that there is any overlap between the businesses of BoE and Credcor
that overlap occurs in relation to PEP.
9. PEP’s core product is a savings facility offering interest rates ranging from 6-8%.
It also offers a personal loan facility to ho lders of savings accounts with incoming
salary deposits. Loans are repayable over a minimum of one month to a maximum
of 36 months.5
of 36 months.5
10. Credcor is a short to medium -term finance company providing unsecured finance
and assurance products to consumers in the lower income, mass market segment
3 BoE Market Focus & Earnings Contribution Schedule 4 Record, p 350 5 Advances up to a maximum of R10,000.
of the market. 6 The company’s range of services include retail credit, which is
its core business activity and comprises 85% of its advances, (advancing credit to
consumers for the purchase of retail goods through a netwo rk of 11 000
independent retailers7); as well as personal loans through its Credcor branches
(15% of its advances) and insurance products (including credit life, product and
funeral insurance).
11. PEP does not presently provide housing loans, insurance products or retail credit.
Similarly, Credcor does not cater to any of BoE’s product markets which targets
its core business activity to the business, corporate and up -market financial
segments.
12. The Commission accordingly identified the only area of overlap an d relevant
market as being the market for personal loans provided to low -income
consumers by lenders in the formal micro-lending industry.8
13. Micro finance is described as money lending on a small scale to consumers for
starting small businesses, or paying expenses including student fees, burial
payments and furniture.9 In recent years, many niche players have rapidly entered
the industry, including African Bank Investments Limited (“ABIL”), Unifer
Holdings Limited (“Unifer”) and Saambou Holdings Limited ( “Saambou”)
through its interest in Thuthukani Group Limited (“Thuthukani”). Traditional
banks have entered this segment, ABSA acquiring a majority interest in Unifer
and Standard Bank Investment Corporation (“Stanbic”) collaborating with ABIL.
Such allianc es realize the benefits of combining the lenders’ customers
knowledge and distribution networks, with the traditional banks’ wider product
scope, secure, cheap funding, IT infrastructure and corporate networks.
14. Furthermore, giant retailers such as JD Gr oup, Ellerines and stores such as
Woolworths and Edgars are also entering the fray. These retailers have the
requisite access to established client databases, market information and credit
requisite access to established client databases, market information and credit
systems & scoring abilities to capitalize on their entry into this emerging market.
15. The emerging market segment of the banking industry is accordingly on a high
growth curve, estimated to be growing at a rate of 35% per annum, as against the
traditional banking sector, which is growing at a rate of 5% to 7% per annum.10
6 Also referred to as the emerging market or described as consumers falling within the Living Standard
Measures 4 to 6 categories. This is a method o f segmenting customers into profiles for the purpose of
identification of target markets. 7 In other words, Credcor accepts the credit risk and administers the credit control function on behalf of the retailer.
(Record p176 )
8 The parties describe this as providing short to medium term loans to individuals in the LSM 4 to 6 category. 9 Record p147
10 Record p 13
16. Whilst we have no reason to dispute the Commission’s definition of the relevant
market, in our view we do not need to define the relevant market with any greater
precision for the purpose of this decision. It is quite clear from what emerges
below when we examine the extent of the parties’ market shares, that whether we
confine the market to personal loans or include retail credit, their market shares
are insignificant. Secondly the figures are probably understated because they are
confined to the major in stitutions in the mass market and do not include other
players and the informal sector lenders.
Geographical Market
17. While Credcor operates 12 branches throughout SA, PEP outlets are concentrated
in the Western Cape area primarily, where it has 50 branc hes. Since consumers in
this market seek location -specific services and lower -end consumers are unlikely
to travel across the country for the purpose of taking out personal loans. The
Tribunal agrees with the assessment of the geographical market by the
Commission, namely that the area of overlap is confined to the Western Cape
region.11
Market Shares
18. The parties and Commission struggled to ascertain the market shares of the
relevant players in the industry. The only reliable figures appear to have been
provided by the Micro Finance Regulatory Council. 12
19. The parties’ market share figures were based on financial information gleaned
from the various industry players.
Firm Gross Advances (RM) % of Total
Abil 4,655 36.5%
Unifer 3,691 28.9%
Saambou 3,714 29.1%
Credcor 435 3.4%
Thuthukani 244 1.9%
PEP Bank 31 0.2%
TOTAL 12,755 100%
20. On the parties’ estimates, the combined market share of the merged entity would
be 3.6% post -merger. These figures incorporate personal loans as well as retail
be 3.6% post -merger. These figures incorporate personal loans as well as retail
11 PEP is rapidly expanding and will presumably open up branches in other provinces. 12 A non -profit institution approved by the Minister of Trade and Industry to ensure compliance with the
exemption to the Usury Act dated 1 June 1999 ( Exemption allows registered lenders to charge more than
the prescribed maxima of the Act).
credit. Accordingly Credcor’s market position is probably overstated since its
retail credit division accounts for some 85% of its business. PEP, on the other
hand, does not provide retail credit at all. The parties also maintained that these
figures would be inflated since they did not account for other competitors in the
industry, such as the big four banks and other micro lenders.
21. The MFRC figures allow one to isolate the parties’ respective shares of the
personal loan market in the lower income market. This yi elds the following
results:13
Firm Gross Advances (RM) % of Total
Abil 518 14.8%
Unifer 2,161 61.6%
Saambou 568 16.2%
Credcor 65 1.9%
Thuthukani 162 4.6%
PEP Bank 31 0.9%
TOTAL 3,506 100%
22. Accordingly, this would leave the parties with a 2.8% post-merger market share
nationally. Unfortunately, the MFRC did not provide a breakdown of these
figures across the various regions, including the Western Cape. However, the
Tribunal finds it unnecessary to establish these market share figures with any
certainty since the market shares for personal lending institutions in respect of the
entire country are de minimis anyway. The Tribunal also took cognizance of the
fact that personal lending is not Credcor’s core business, and in fact comprises
only 15% of its overall business activities.
Impact on competition
23. The parties alluded to the abundance of competitors present in the emerging
lending market, both in the form of smaller financial institutions and retail groups
(including Peoples Bank, PSG, JD Gro up, Ellerines, Moneywise) and more
especially the four larger, traditional banks who are active in the emerging market
(Standard, ABSA, Nedcor and FNB 14 ). Unfortunately, there was a paucity of
accurate market data which would assess the degree of inroads in to the relevant
market by these banks and other emerging players (albeit they are largely
fragmented and insignificant in terms of market power). However, the Tribunal
fragmented and insignificant in terms of market power). However, the Tribunal
accepts the parties’ argument that such players could in all likelihood erode the
parties’ overall market shares even further.
13 These calculations are based on figures provided by the Micro Finance R egulatory Council (MFRC). 14 The parties here draw reference from the Nedcor/Stanbic report.
24. The parties also stated at the hearing that precisely this competitive nature of the
industry could well encourage BoE management to pass on capital savings to
consumers in the form of lower interest rates.
25. In conclusion, in view of the de minimus combined market share of the merged
entity in the Western Cape, as well as the highly competitive nature of the
industry, this transaction does not raise any competition concerns.15
26. The Tribunal therefore endorses the Commission’s view that this merger will not
result in the substantial lessening or prevention of competition in any market.
Public Interest Considerations
27. The merger raises no competitiveness concerns and there are no public interest
considerations which would alter this conclusion.
_____________ 10 July 2001
N. Manoim Date
Concurring: D.H. Lewis, P. Maponya
15 The parties asserted that this is a high growth industry with many banks currently entering the emerging
market