The assets of one of the oldest financial institutions in South Africa have passed the R1-billion mark. GBS Mutual Bank, formerly the Grahamstown Building Society, took eight years to grow its balance sheet from R500-million, a target it set in 2007.
The assets of one of the oldest financial institutions in South Africa have passed the R1-billion mark. GBS Mutual Bank, formerly the Grahamstown Building Society, took eight years to grow its balance sheet from R500-million, a target it set in 2007.
The 137-year-old mutual bank, according to MD Anton Vorster, ascribes its longevity to its commitment to the community it serves and the support it receives from that community. Vorster reminds that GBS is a "Grahamstown asset", and as such R1-billion is a big deal. However, more notable is that GBS is embedded in the community.
"The important thing is not that we have got R1-billion. The important thing is that our clients have got us here. So a really big thank you for the support."
Unlike other building societies, which have all been swallowed by banks, GBS converted to a mutual bank, which is owned by its depositors. GBS is one of three mutual banks, the other two being VBS and Finbond. Like GBS, VBS, the former Venda Building Society, also converted to a mutual bank. Finbond a new kid on the block, focuses on micro-lending.
GBS avoids micro-loans, and the reason for that, Chairman Tom Tagg remarks is simple.
"We do very little unsecured lending."
"We don't think shareholders and depositors would appreciate that," adds Vorster.
In age where risk-taking is seen as normal, GBS makes a virtue out of being staid. It is emphatically risk-averse, which is why it is still in business long after the other financial institutions based on the principle of mutuality, the building societies of old, and others have been gobbled up by the big banks.
Growth has been relatively steady. In recent times it has accelerated, but over the last 20 years probably averaged 8% to 9%
"In 1986 we reached R100m," Vorster says, "so it took us 109 years or so to get there. It took us another 20 years to get to R500m, and we reached R1-billion in 2014.
The big boost to growth came when we moved away from purely mortgage lending in 1997 to asset-based finance -instalment sales, rentals like office automation, leasing and the like – says Tagg.
Annual profit – which goes back to reserves rather than being distributed to members has grown from roughly R1-million in the 2010 financial year to a little over R6-million for the year to end March 2014. It is margin dependent, meaning that the bank's profitability is much determined by prevailing interest rates. If rates drop it earns less money. Because it is a mutual the bank will not be chasing profits in future.
"We are very risk-averse. We are very conservative in our outlook. We would rather not do business than do bad business."
"The reason we can be risk-averse," adds Tagg, "is that we don't report to equity shareholders on profitability. We don't have to chase assets, we don't have to chase profitability. That is the basis of mutuality."
Unlike the commercial banks, GBS is deposit-driven, carefully cutting its cloth to suit its coat by adjusting lending according to how much money it gets from depositors. It's capital adequacy ratio, the percentage ratio of a bank's capital to its assets and a measure of the ability to absorb losses before becoming insolvent, is a comfortable 15,8% versus a required 10%.
It holds around 20% of its balance sheet deposits in cash, and will slow lending if short of cash.
Focusing on deposits and loans rather than transactions also means that the bank gets relatively little from fees as opposed to investments and advances. Fees can contribute 50% of commercial banks' income: for GBS the figure is more like 15%.
The second-oldest bank in the country, GBS has its HQ in Grahamstown, but has three other branches. One is in Port Alfred, one in Port Elizabeth and the third is in Cape Town.
While GBS has a strong bias towards the Eastern Cape, it attracts most of its money from the Eastern Cape and lends through its Cape Town, PE and Grahamstown branches to the rest of the country.
The bulk of GBS's asset-based finance comes from the Western Cape branch. Around R350300-million of the R1-billion on the balance sheet is achieved through Cape Town.
Most of the mortgage finance, which is still GBS's mainstay, is in the Eastern Cape because the bank is well known there.
"Our biggest product by a long run remains mortgages. Mortgages are approximately two-thirds of our book. And that's our history, our background. We think we're quite good at it," Vorster notes.
Mortgages – and GBS offers both residential and commercial loans – don't offer the same returns as asset-based finance, but have a lower level of losses, and are a stable source of business, he adds.
Most of the lending is backed by depositors. GBS doesn't have the ability to attract new capital, with its only permanent capital being retained income. The balance of its funding comes from deposits.
And most of that comprises fixed, term and share deposits, with a small book of savings accounts. Share deposits account for around R265-million of the liabilities side of the balance sheet, fixed and other deposits around R659-million.
The bank has subscription shares, fixed-term shares, and shares with an indefinite period i.e. with no predetermined end date.
" 'Share' is a misnomer," points out Tagg. "It's a savings instrument, not an equity share, though on winding up those depositors would share in the reserves of the bank."
Vorster says the nature of mutual means that the owners of the shares don't participate in profits: they earn a rate, floating or fixed, and earn interest rather than dividends.
All products are competitive, but shares generally offer a slightly higher rate than a comparable fixed deposit. While GBS competes on rate, it is especially committed to personal service, and its knowledge of the community and corporate social investment in the community give it an edge, says Vorster.
"Our commitment to the community is one of the reasons we are still around," says Vorster.
In its corporate social investment GBS has a strong bias towards education and supports most Grahamstown schools through an annual donation. The bank also funds a local disadvantaged student at Rhodes University for a year. It gave sponsorship of R10 000 towards the Give5 fundraising campaign, which involves students raising money for fellow students in need.
Its community support is illustrated by its donations to the Grocott's Mail Christmas Cheer Fund, as well as to many institutions, such as retirement homes, Hospice and Child Welfare. GBS donates to local schools and clubs for a range of sports, from golf through running to bowls.
Vorster says that an extraordinary successful initiative has been a Financial Lifeskills programme, run by a bank employee, Mfuzo Dyira, for communities for close to 10 years. He provides a programme that educates communities he visits in basic financial skills. The programme is relatively formal, and participants get certificates after writing exams.
Over the years GBS has been generous, given its small financial size, having given, for example R75 000 to Gadra Education on Grahamstown's 200-year anniversary to help students matriculate and get to university. On Rhodes' centenary, GBS donated R200 000 to the university, and in around 2004 gave R360 000 to Exolweni street children programme.
GBS fundeds two projects at Ntsika Secondary School in Grahamstown, the school's bicycle project and driver's licence project.
What next for the bank, which as Vorster puts it, doesn't do short-term, radical change?
Allowing clients to access balances tax certificates and issue instructions is on the cards. So too is access to ATMS.
Neither is imminent, and the bank is not rushing into anything. It is part of a pattern that is discernable in the entire approach of the GBS. The chairman and the MD are adamant. While they are proud of the R1-billion milestone, GBS will not do anything that will threaten its ability to remain an independent mutual bank.
