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While Capitec Bank Holdings becomes one of the most actively traded and volatile shares on the JSE at the moment, the following article looks to take stock of the order of events including the report the response, ratings agencies, South African Reserve Bank as well as look at client views, broker views, analyst targets and finally a technical analysis view.
The main contentions Viceroy have identified with Capitec Bank holdings to deem the company “uninvestable” are as follows:
- Capitec is either fabricating new loans and collections, or re-financing ~ZAR 2.5bn – 3bn (US$200m-$240m) in principal per year by issuing new loans to defaulting clients.
- Capitec advising and approving loans to delinquent customers in order to repay existing loans
- analysis against competitors suggests an impairment/write-off impact of ZAR 11bn will more accurately represent the delinquencies and risk in Capitec’s portfolio
- upcoming reckless and predatory lending test case in March 2018 will be used to trigger a multi-party litigation refund (class action)
- Capitec’s prohibited and discontinued multi-loan facility lives on, rebranded as a “Credit Facility”
- We see no operational difference between Capitec and its ill-fated predecessors, including African Bank
In addition Viceroy have said that some former employees believe they were fired for not deceiving borrowers and failing to meet rescheduling targets on impaired/defaulting loans and that the South African Reserve Bank should immediately place Capitec into curatorship.
(sourced and condensed from viceroyresearch.org)
In response to the Viceroy report points highlighted above, Capitec has advised (via the stock exchange news service) the following:
- The estimate in the Viceroy report does not accurately calculate client repayments. There is a logic flaw that loan sales should be reduced accordingly. Furthermore, the default rates that they calculate does not consider the fact that written off balances include fees and should be compared against the sum of actual receipts plus write-offs
- Whenever we grant a loan, we do a comprehensive credit assessment based on the BAS principles (behaviour, affordability and source)
- As at 31 August 2017, our doubtful debt provision covers loan balances in arrears by 237% and 152% when including arrears loan balances rescheduled within the last 6 months
- The proposition of a class action is speculation of the highest nature and premature. The matter must still be heard and Capitec believes it has solid defences to the allegations
- The credit facility operates the same way as a credit card except that the Capitec credit facility terminates after 9 months. If the client applies for a new Capitec credit facility we do a new comprehensive credit assessment to see if the client qualifies for a new Capitec credit facility
- Capitec Bank is fully fledged retail bank and has different sources of income, not only credit. It’s transactional business continues to contribute materially to its earnings as reported in our 1H 2018 results
The bank has dismissed claims made by former employees in the Viceroy report as being false and expressed concerns relating to how Viceroy conducts its research and lodged a formal complaint with the Financial Services board.
(sourced and condensed from Stock Exchange News Service)
The South African Reserve Banks response
The SARB after consultation with the Registrar of Banks has said that Capitec is well capitalised, liquid and solvent, and meets all prudential requirements. Reassuring markets that the funds of depositors are safe.
The SARB has also said that the Financial Services Board, as the market regulator, working with the JSE, urgently considers whether it should initiate a market abuse investigation into the conduct of Viceroy, and to ensure that it is regulated appropriately. The FSB is requested to also alert relevant overseas regulators, like the Securities and Exchanges Commission in the USA and the Financial Conduct Authority in the UK, to consider whether Viceroy is regulated appropriately, and to consider whether it has transgressed any of their market conduct and market abuse laws that aim to protect investors
(sourced from National Treasury)
S & P Global Ratings
S&P Global Ratings said today that its ratings on South Africa-based Capitec Bank Ltd (BB/Stable/B) are not affected by an investment report published by Viceroy Research on Jan. 30, 2018, or by the market’s reaction to the report.