COMPETITION TRIBUNAL
REPUBLIC OF SOUTH AFRICA
Case No: 40/LM/Jul01
In the large merger between:
BoE Bank Limited
and
Cashbank Limited
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Reasons for Decision
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APPROVAL
On 12 September 2001 the Competition Tribunal issued a Merger Clearance Certificate
approving the merger between BoE Bank Limited and Cashbank 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
underlying assets of the target firm, Cashbank Limited (“Cashbank”). 1
2. Following the merger, Cashbank will operate as a division of BoE Bank.
The Gateway SPV
3. During the merger hearing, it emerged that the parties sought to obtain
simultaneous approval for the BoE’s acquisition of Gateway SPV, a separate
vehicle created in 2000 for the purpose of raising funds for Cashbank and to
drive securitisation. 2
4. In terms of the agreement between Cashbank and Gateway Home Loans,
Gateway acquired a portion of Cashbank’s loan book, (valued at R150 million
1 Cashbank is controlled by Cashbank Holdings Limited, an unlisted public company.
2 This, a joint initiative with the National Housing Finance Corporation, this venture was set up with the
purpose of providing affordable housing finance to individuals without access to conventional credit.
as at 30 April 2001) subject to the condition that such loan book be managed
by Cashbank on behalf of the SPV. The Gateway loan book consists entirely
of housing loans secured by mortgage bonds.
5. The parties maintained at the hearing that BoE has two ways of acquiring the loan book. Firstly, if
the book is bought back by Cashbank before the effective date of the main transaction, it would
therefore constitute an asset and be included in the business assets sold to BoE. The other
alternative is for the SPV to sell the loan book directly to BoE after the effective date. The parties
argued that whatever route is followed by BoE for the acquisition of Gateway, 3it fell within the
ambit of this merger transaction and it was accordingly competent for the Tribunal to evaluate it
simultaneously with the primary transaction. The Commission maintained however that the
second route constituted a separately notifiable transaction. However the Tribunal decided that in
view of the insignificant competitive effect of these additional assets being acquired, the fact that
in essence the acquisition of the loan book formed part of the same transaction, as well as the fact
that the parties had provided full disclosure around this transaction when questioned about it by
the Commission, it would include the Gateway acquisition in its consideration of the entire
transaction.4
EVALUATING THE MERGER
The relevant market
6. Both parties are registered banks providing a range of banking services within
South Africa. BoE primarily caters to the middle to upper income market,
whilst Cashbank’s focus is the emerging market. There are, nevertheless,
overlaps in respect of some product markets. 5
7. For the purpose of this analysis, we will disregard the corporate and high
income individual market and focus on the middle and lower income markets.
income individual market and focus on the middle and lower income markets.
8. There are only three BoE subsidiaries whose services are relevant in this
regard, namely, NBS, BoE Business Bank division (Pep Bank) and Credcor.
NBS
NBS focuses on the middleincome individual market, providing mortgage loans,
savings and investment products & advice, as well as financial planning.
• BoE Business Bank
3 To be determined in the forthcoming weeks.
4 The other alternative being for the SPV to sell the loan book directly to BoE after the effective date,
would have meant incurring costs for an additional filing.
5 The mass market segment contributes less than 1% to BoE’s total earnings. ( BoE Market Focus & Earnings
Contribution Schedule)
2
BoE Business Bank division (through PEP Bank 6) provides services to small and
medium sized businesses. It has established a presence in the emerging market,
targeting the lower income, previously inaccessible segment of the market.
• Credcor
Provides personal finance to retail consumers through independent retail
merchants.
Cashbank
a. Cashbank is primarily focussed on the emerging or low income
market. Its core expertise is the provision of housing finance,
however it does also provide other types of advances, grouped by
category, viz. general purpose, corporate loans 7, and retail. The
proportion of business effected per Cashbank category of activity
is reflected below:
10. The Commission identified overlaps in relation to the following services:
a. Housing Loans
b. General Purpose Loans
c. Corporate Loans
d. Retail Loans
11. However, on closer examination, it appears that markets can be further stratified
according to income grouping of customers and product type:
6 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 .
7 The parties maintain Cashbank no longer advances corporate loans.
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PRODUCTS BOE CASHBANK
1. Housing Loans:
- secured by
pension/provident fund
X √
- secured by mortgage bond √ (NBS) √
• Below R120 k8 X √
• R120 k-R150 k √ √
2. General Purpose Loans
- middle income market √ (NBS) X
- emerging market √Credcor – max
R35k
√ max R25k
PEP – max
R10k
3. Corporate Loans9 √ X
4. Retail Loans √ √
Source: parties’ Market & Competition Report
12. From the above table, it is apparent that the areas of overlap (as indicated by
shaded rows) are in respect of the:
i.Housing loan middleincome market secured by bond;
ii.General purpose loan mass/emerging market;
iii.Retail loan mass market.
13. We accept the distinction between loans secured by mortgage bond and those
secured by pension or provident fund since this appears to be a separate niche of
the housing loans market that caters primarily to the emerging market.
14. Though it could well be argued that the divisions between middle and emerging
market may seem somewhat arbitrary, 10 the income segments nevertheless do
enable comparison of overlap at various income levels, as well as allowing one to
8 According to the parties, NBS advance very few, housing loans under R120 000.
9 Although Cashbank provided corporate loans in the past, the parties maintain that they no longer provide
new corporate loans.
10 The parties argue that housing loans below R120 000 are generally referred to as the “mass market”, as
are general purpose loans below R35 000.
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narrow the market analysis. We accordingly accept this definition of the relevant
market.
Geographical Market
14. The Commission stated that the market was national since BoE (both NBS and
Credcor) have branches in all major cities while Cashbank services its clients via
their employers situated all over the country. We accept this definition.
Market Shares
Housing Market
15. NBS is the only division of BoE involved in the housing loans market. As
reflected in the table below, the combined market share postmerger is 9.4%. The
parties maintained that the housing loans market could be divided into loans
secured by mortgage bond and those secured by pension and provident fund.
Notwithstanding their assertions that the relevant market could be confined only
to the area of overlap, namely that of housing loans secured by mortgage bonds,
they produced market share figures in respect of the total mortgage bond market .
The parties explained that the DI900 Reserve Bank returns from which their data
was extracted only delineated rigid categories of mortgage housing loans
therefore no more specific data was available. 11
Firm Value (R000) % of Total
Cashbank 463 003 0.25
pension/provident 173 242
mortgage bond 12 289 761
NBS 16 616 096 9.11
TOTAL MARKET 182 370 000 100
Source: DI900 Reserve Bank Returns monthend 30 April 2001
10. The parties further confirmed that despite the lack of hard data in support,
Cashbank was a somewhat small player in the market for loans secured by
pension/provident fund market with Alexander Forbes, Standard Bank and
National Benefits Consultants (NBC) enjoying infinitely more market share. From
figures submitted in respect of the total advances of the major players in this
figures submitted in respect of the total advances of the major players in this
market, Cashbank enjoys a mere 3.05% market share, with Alexander Forbes
capturing approximately 32 % of this market. 13
11 The parties maintained that these figures are in respect of all mortgage loans , irrespective of amount.
They were unable to obtain market share information only in respect of loans within the R120 000 to
R150 000 category.
12 Including the Gateway loan book of R150.815 million.
13 Parties’ Competitiveness Report, page 5.
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General Purpose Loans 14
11. The parties described this category of loan as “personal loans to individuals in the
mass market sector.” 15 Their combined market share postmerger will be 4.6%.
Firm Value (R000) % of Total
Cashbank 32 957 0.3
NBS 466 000 4.3
PEP 31 000
Credcor 435 000
TOTAL MARKET 10 900 000 100
Source: Unaudited management accounts of company, MFRC
Retail Loans
12. The parties estimated that Cashbank’s retail loans comprised approximately
0.03% of its total advances 16. As for BoE, only its Credcor division provides
retail loans, comprising 15% of it total advances. The parties submitted that
market share information was difficult to obtain since those loan grantors that
provided retail credit subsumed this under their total “advances” category. Such
grantors were in any event reluctant to disclose sensitive market data. The
Commission did however establish from market share information submitted
from various sources, that the postmerger market share in this category would
not exceed 1%.
Impact on competition
13. In the housing loans market, Cashbank’s core activity, it is apparent that the
combined entity’s combined market share of approximately 9.4% does not raise
any competition concerns. Competitors such as ABSA, Nedcor, Standard Bank
and Firstrand further indicate sufficient competition within this market.
14. With respect to general purpose loans, again, the low market shares of 4.6% do
not merit concern. Furthermore, there is sufficient competition in the emerging
market from other microlending institutions and banks to reassure that
competition in this market will not be lessened.
14 The parties did not provide data to reflect the market shares of other competitors in this market.
15 Parties’ Competitiveness Report, page 6.
16 See Business Category Analysis, above.
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15. As for retail loans, a postmerger share of less than 1% would definitely not have
an impact on competition in this market.
16. 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
17. The primary rationale behind the transaction is to facilitate BoE’s foray into the
emerging market housing loans sector. The merger will apparently enhance
emerging market access to home loans since BoE will be able to contribute
significant capital, technical and other resources. Without the merger, the parties
contended that Cashbank could be forced to cease operating altogether.
18. The merger raises no public interest concerns. The parties maintained that
there might be some rationalization occasioned by the integration of BoE’s
restructuring operations, however this was in respect of skilled jobs and in any event
would not exceed the amount of expected job losses should the merger not go ahead.
_____________ 21 September 2001
D.H. Lewis Date
Concurring: N. Manoim, D. Terblanche
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