MARKETING 3: ASSIGNMENT 2 [100] QUESTION ONE [80] Read the following article and answer the questions that follow Battle of the banks: Capitec vs Standard Bank vs FNB vs Absa vs Nedbank As South Africas banking sector faces increasing competition from new digital entrants, a fierce battle still rages on among the legacy institutions. Referred to as the big five, these firms go beyond retail offerings, with a full-service portfolio of credit, loans, asset management, and other services, while fending off new digital entrants into the market including TymeBank, Discovery Bank and most recently Bank Zero. So which of these institutions Capitec, Standard Bank, Absa, FirstRand or Nedbank stands tallest, or is the biggest? It depends on the category. If measured by network size namely ATMs and branches, both Standard Bank and Absa are the largest banks. However, when it comes to customer reach, Capitec claims to have the most retail customers in its ecosystem. If you were to determine size by assets under control, profitability, or the number of employees employed in South Africa, the answer would also be different. BusinessTech looked at the most recent annual financial reports (from 2020/21) and compared the big five banks on 12 key metrics from financial performance to network and reach. The data below covers both group and South African operations for example, group data was used for employees, and finances, while South African data was taken for customer numbers. FNB is represented by FirstRand Group, but FNB branches and ATMs were used for the figures. Share prices, market cap and P/E rations were taken from Bloomberg data. The data covers the following reporting periods: FirstRand FY 2021 (ended June) Capitec FY 2021 (ended February) Absa FY 2020 (ended December) Nedbank FY 2020 (ended December) Standard Bank FY 2020 (ended December)

Market capitalisation and P/E ratio Back in 2017, Capitec had the smallest market capitalisation across the big five retail banks but has since climbed to third-largest by this metric, with the difference between Capitec and Standard Bank in second place (R28.6 billion) smaller than the gap between it and Absa in fourth (R72.4 billion). FirstRand, meanwhile, has solidified its position as the most valuable bank on the Johannesburg Stock Exchange. When it comes to share price, Capitec far surpasses its peers. The group shot past the R1,000 per share mark in 2018, and now sits close to R1,700 per share. This, however, also makes it the most expensive when looking at the price over earnings (P/E) ratio, almost double the next in line. The P/E ratio is the ratio for valuing a company that measures its current share price relative to its per-share earnings. The cheapest stock among the banks is Absa, with a P/E of 8.69. Bank Market Cap Share price P/E Ratio FirstRand (FNB) R342.0 billion R61.24 12.69 Standard Bank R222.6 billion R138.66 10.99 Capitec R194.0 billion R1 690.57 24.50 Absa Bank R121.6 billion R144.08 8.69 Nedbank R85.6 billion R168.90 9.49 Group Finances Standard Bank is the top-earning institution among local banks, with a total income of R108.6 billion. The Covid-19 pandemic and lockdown impacted all big banks over the review period, reflected in income and headline earnings. Standard Bank, Absa and Nedbanks data reflected a more complete Covid-19 picture being the 12 months ended December 2020 while Capitec and FirstRand reflected some of the 2021 recoveries. FirstRand maintained its pole position in terms of headline earnings though, again, muted from the general economic slowdown brought by the pandemic. Income reflects both the interest and non-interest income for the respective banks. Headline earnings are a measure of a companys earnings based solely on operational and capital investment activities. It excludes income that may relate to staff reductions, sales of assets, or accounting write-downs. In terms of headline earnings per share, Capitec is the clear leader by some margin.

Bank Income Headline Earnings HEPS (cents) Standard Bank R108.6 billion R15.9 billion 1 002 FirstRand (FNB) R72.2 billion R19.3 billion 480 Absa Bank R81.4 billion R8.0 billion 946 Nedbank R54.2 billion R5.4 billion 1 113 Capitec R15.2 billion R4.6 billion 3 966 Core capital The Bankers top 1000 banks report is based on a measure of a banks Tier 1 Capital known as core capital, which consists of shareholders equity and retained earnings. Standard Bank has entrenched its position as the biggest bank in the country by Tier 1 capital, widening the gap between it and its closest competitor, First Rand. Despite a 5.8% climb in Tier 1 capital to $11.16 billion, Standard Bank slipped down the overall global rankings to 157th position. The only two South African banks to climb the rankings were Investec and Capitec. Capitec re-entered the top 1,000 banks, ranking 558th overall with $1.9 billion in Tier 1 Capital. Absa fell 14 places to 184th in 2019s global ranking, with Nedbank down 23 places to 240th. Capitec ranked 588th overall and showed some growth in its Tier 1 Capital over the past year, recording a 1.7% improvement. Bank Tier 1 Capital Standard Bank $11.2 billion FirstRand (FNB) $7.8 billion Absa Bank $7.6 billion Nedbank $5.6 billion Capitec $1.9 billion Reach and network As banks accelerate their digital transformation, physical branches and ATM networks are moving in the opposite direction. Where branches arent being closed altogether, the space they currently occupy is actively being reduced. In the Covid-19 era, the digital drive has accelerated further, while physical points of presence have been reduced further. However, banks have made it clear that a physical presence is still vital to servicing customers. Branches and ATMs are still key to operations. To this end, Standard Bank has the most expansive branch network, while Absa has the most ATMs in its channel network. Its worth noting that while the banks are actively downscaling these numbers, Capitec is still adding branches. Standard Bank is also the biggest employer across the banks, with over 50,000 employees working across the group. Bank Employees Branches ATMs Standard Bank 50 115 1 124 6 774 Absa Bank 36 737 619 8 660 FirstRand (FNB) 37 741 599 4 848 Nedbank 28 324 549 4 224 Capitec 14 672 857 6 725 Customers Capitec has grabbed headlines over the years for its strong growth and now sits comfortably as the largest retail bank in the country in terms of active retail customers. At the end of its latest financial year, the group reported 15.7 million active customers. In the months since, it has grown that figure further 16.8 million customers. Having millions of customers is a goal for all groups to reach financial targets, however, thanks to social networks and big data capabilities, customer satisfaction has become a valued metric to determine success. The latest South African Consumer Satisfaction Index for the countrys retail banks showed that Capitec and Nedbank customers are the happiest with their services, while Absa and Standard Bank lag behind.

Bank Active retail customers SA (FY2020/21) Customer Satisfaction (2021) Capitec 15.7 million 84.7 Absa Bank 9.7 million 78.6 Standard Bank 9.3 million 77.7 FirstRand (FNB) 7.5 million 80.2 Nedbank 7.3 million 81.1

1.4 Organisations such as banks offer services. Unlike products, services have four distinctive characteristics that greatly affect the design of marketing programs: intangibility, inseparability, variability, and perishability. Discuss the strategies that can be adopted by banks to effectively address the challenges posed by these services characteristics. (20)