Capitec Bank hopes that its acquisition of Creamfinance, a European online lending firm, will eventually lead the establishment of a digital-only bank overseas.

“We’re building a digital bank on this side and they’re building a lending platform. Now, I’m not saying it’s going to happen, but the aim is to merge the two in a couple of years from now. Then we don’t need to have a bricks and mortar [bank] in a different country,” said CEO Gerrie Fourie.

Capitec, renowned for disrupting the South African banking industry, previously announced that it would acquire a 40% stake in Creamfinance for €21m.

Fourie, who described Creamfinance as a “young, dynamic company” similar to Capitec 15 years ago, said the deal provides Capitec with an opportunity to learn and understand how to operate in foreign markets.

The online lender, founded in Latvia in 2012, operates in six countries and could extend its services into 30 markets, he said.

Renier de Bruyn, an investment analyst at Sanlam Private Wealth, said the first benefits for Capitec would be learning how to operate in a completely online environment, gaining insight from Creamfinance’s advanced credit underwriting methods and experience in foreign microlending markets.

“It’s a very small deal as the €21m purchase price makes up around 0,3% of Capitec’s market cap. They’re also taking a very cautious approach by investing in tranches. But it’s a very exciting step that they’re taking entering international markets,” he added.

Capitec continues to make strides in South Africa, growing its client base by a record 1,3m to 8,6m active clients during the course of the financial year ended 28 February 2017.

Fourie said much of the bank’s expenses relate to its rapid growth. Its operating costs increased by 18% to R5,4bn, largely due to an increase in its staff complement, the costs associated with expanding its branch network and investing in its IT capacity.

Headline earnings and headline earnings per share increased by the same margin to R3,8bn and R32,81 respectively, on the back of a 30% increase in transaction or non-lending fee income. The bank said transaction fee income covered 72% of its operating expenses and contributed 37% to its net income of R10,7bn.

Net lending and investment income increased by 14% to R11,9bn.

The bank’s move toward granting “lower-risk, higher-value to better quality clients”, saw the number of loan requests approved decrease by 5%. However, the total value of money loaned increased by 10% to R45bn.

As at financial year-end, the average value of short-term loans granted over a period of less than six months was R1 905 while that of long-term loans was R26 605.

Capitec also reported a 16% increase in net loan impairments expenses of R5,1bn.

The group attributed much of the 37% increase in the value of write-offs of R5,4bn to a “significant change in rescheduling policies in the current policies in the current year and the market deterioration of the prior year, which was provided for in 2016, that materialised in the current year”.

“There has been some concern around the high amount of loans that were rescheduled in the previous financial year which helped Capitec to reduce write-offs given their very conservative write-off policy. However, management has provided adequately for the higher risk associated with these rescheduled loans in our view. We note that management has taken a much stricter approach to allowing clients to reschedule loans over the past year, especially those clients that they view are not financially stressed enough to require rescheduling,” De Bruyn said.

Provisions for bad debt decreased by 37% to R799m while the total provisions compared to gross loans and advances increased to 13,1%.

Capitec lifted its total dividend by 18% to R12,50/share.