COMPETITION TRIBUNAL
REPUBLIC OF SOUTH AFRICA
Case No: 38/LM/Jun01
In the large merger between:
WesBank, a division of First Rand Bank Limited
and
BoE Bank Limited, for the acquisition of the unsecured personal loans book of BoE
Business Division, a division of BoE Bank Limited
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Reasons for Decision
_______________________________________________________________________
APPROVAL
On 25 July 2001 the Competition Tribunal issued a Merger Clearance Certificate
approving the merger between WesBank, a division of First Rand Bank Limited and BoE
Bank Limited without conditions in terms of section 16(2)(a). The reasons for the
approval of the merger appear below.
Background
1. The primary acquiring firm is WesBank, (“WesBank”) a division of First Rand
Bank Limited, (“First Rand”) which is ultimately controlled by First Rand
Limited. Other acquiring firms relevant to this transaction (and divisions of First
Rand) include Cashpower, a division of WesBank, FNB Personal Loans, FNB
Credit Cards, FNB Personal Overdrafts and Direct Axis (Pty) Ltd (“Direct
Axis”).1
2. The primary target firm is the unsecured personal loans book of BoE Business
Division, a division of BoE Bank Limited, (“BoE”). 2 BoE is in turn controlled by
BoE Limited and ultimately, by BoE Bank Holdings Limited. Other divisions of
BoE relevant to this transaction include PEP Bank, NBS Personal Loans, BoE
Personal Loans Division, BoE Credit Card and BoE Corporate (personal
1 FirstRand acquired Direct Axis pursuant to an equity acquisition
in April 2001.
2 The Business Division of BoE Bank (formerly Boland Bank PKS), following the 1998 merger of BoE,
NBS and Boland.
overdrafts).
3. In 1997 BoE Bank (then Boland Bank PKS Limited) and Direct Axis had entered
into an agreement in terms of which Direct Axis became BoE’s independent
agent. It provided marketing and administrative services to BoE Bank relating to
its Personal Loans Division in consideration for a fee. In terms of this agreement,
BoE (Boland) ran its personal loans division as a separate division.
4. On 1 April 2001, FirstRand acquired 51% of the equity of Direct Axis.
The Merger Transaction
5. FirstRand (WesBank) is acquiring the personal loans book of BoE Bank’s
Personal Loans Division, previously operated through Direct Axis. 3 This includes
loans outstanding and the existing customer database.
6. BoE seeks to dispose of its loans book as part of a strategic decision insofar as
this particular book does not meet its future strategic focus. BoE Business
Division is presently realigning its businesses to enable it to entrench itself in the
microfinancing market. It is accordingly disposing of this particular personal loan
book to enable it to do so. 4 WesBank (currently primarily a provider of vehicle
finance) seeks to consolidate its position in the personal loans market, via
Cashpower, its personal lending arm. 5
7. Notwithstanding disposal of this specific loans book, following this transaction,
the BoE Group will continue to operate in the personal loans market via two
channels: PEP Bank and through a new unsecured personal loans business
launched through NBS. FirstRand will continue to offer personal loans through
First National Bank and WesBank. 6
EVALUATING THE MERGER
3 Upon conclusion of the sale of the loans book agreement, the original agreement between BoE and Direct
Axis was cancelled. Axis will now be responsible for the marketing, assessing, granting and administering
of the personal loans for First Rand’s personal loans division, as opposed to that provided for BoE (Boland
Bank) as before.
4 BoE is nevertheless retaining a foothold in this market via its other personal lending divisions.
5 At the hearing the parties advised that the personal loans operation will be integrated by the formation of
a new division, West Direct which will house Cashpower and the newly acquired BoE book.
6 See Record, CC4 (2) Annexure A. Through West Direct.
The relevant market
8. Both parties operate broadly within the financial services industry. Although WesBank is
primarily focused on vehicle financing, it also has a personal lending arm, namely its Cashpower
division. Cashpower provides an accessible form of “paperless” credit by telephone to consumers.
The parties pointed out at the hearing that the vehicle financing and personal lending business
models were similar, there were also some economies of scale, hence the reason for grouping this
new acquisition under the WesBank banner.
9. Both BoE and FirstRand, through their respective divisions, provide
personal loans to customer segments 7 grouped as follows:
BoE and FirstRand Divisions
Product Amount Term Minimum
Earnings
Custome
r
Segment
Wesbank
Cashpower R4,000 to
R20,000
12 to 60 months min R4,000 pm LSM 7
FNB Personal
Loans
R4,000 to
R20,000
12 to 60 months Min R3,000 pm LSM 7
FNB Credit
Cards &
Overdrafts
Min R3,000 pm LSM 7
BoE
NBS Personal
Loans
R2,000 to
R20,000
12 to 60 months Min R1,750 pm LSM 6
PEP Bank R1,000 to
R10,000
6 to 36 months Min R750 pm LSM 23
Personal Loans
(DirectAxis)
Min R3,000 LSM7
BoE Credit Card Min R5,000 pm LSM 7
BoE Corporate Min R15,000 LSM 8
10. BoE Business Bank and Direct Axis primarily cater to the upper end of the
personal loans market, falling within the purview of the Usury Act. At the
hearing, the parties explained that this market was distinct from the microlending
market, where personal loans are advanced to the mass, emerging market, in a
lower income category. 8
7 LSM is a method of segmenting customers into profiles to enable marketers to identify their target
market.
8 This market is covered by the Usury Act’s Exemption Notice 15 (a), in terms of which interest rates are
substantially higher.
11. The Commission analysed the market in respect of personal loans on the
narrowest definition, excluding credit cards and overdrafts. 9 Since WesBank is
only acquiring the personal loans book of BoE Bank’ s personal loans division,
we find it unnecessary to define the relevant market in any detail for the purpose
of this decision.
Impact on Competition
12. According to the Commission, the combined market share with BoE’s book
would be 13.13% postmerger. The personal loans book of BoE Bank’ s personal
loans division represents a mere market share of 1.43%. No competitor is being
removed as BoE is retaining its presence in the personal lending market (1.3%).
Accordingly, the Tribunal is of the view that this transaction will have little, if any
effect on the prevailing state of competition in the personal loans market.
Firm Market Value (RM) % of Total
Total FirstRan
d
BoE First Rand BoE
Personal loans 22,451 2,619 298 11.7 1.3
Specific BoE
Book
326 326 1.43
Personal loans
(with BoE Book)
22 777 624 2.73
13. The parties furthermore advised that there are many other competitors entering
the market, since telephonic banking, especially in respect of personal loans is
becoming commonplace, to the extent that it could be regarded as a specific
niche in the personal lending market. Not only do other established banks such as
ABSA and Nedbank provide this service, but in addition, retailers such as
Woolworths and Edgars are now providing personal loans, subject to the
appropriate credit criteria being met. 10
14. It is for these reasons that the Tribunal concludes that there will be no substantial
lessening of competition in this market.
Public Interest Considerations
9 The Commission accordingly identified three distinct product markets in respect of the three types
of services provided by the parties namely, overdrafts, credit cards and personal loan facilities. It
focussed its analysis on the broad “personal loans” market only. It rejected the party’s contentions
that overdrafts and credit cards compete directly with personal loans, therefore falling within the
same product market, since the former two products may be used for different purposes to that of
personal loans.
10 We were advised that these loans are not tied to purchases at the retail institutions.
15. There are no employment concerns arising as a result of this merger. The parties
claim that absent the merger, BoE would close down its personal loan business,
resulting in approximately 120 Direct Axis employees being retrenched.
_____________ 31 July 2001
N. Manoim Date
Concurring: D. Terblanche, U. Bhoola