Capitec: ‘We are not African Bank’

2014-08-17 15:01

Capitec Bank is asking its customers not to panic after a two-notch ratings downgrade related to the meltdown of its peer African Bank.

The two banks are often lumped together as the country’s two largest unsecured lenders.

Capitec’s financial director, André du Plessis, lashed out at the “kneejerk” reaction, saying: “At this point in time, the downgrade will not affect our level of service or the cost of credit to our clients.”

Credit ratings agency Moody’s said on Friday that, after a review of Capitec, it would downgrade the bank’s deposit rating, meaning the likelihood it can pay its depositors their money back.

The main reason was that the SA Reserve Bank’s rescue plan for African Bank had involved giving all bondholders a “haircut” - making them accept that they would only get back 90% of what they are owed.

According to Moody’s, Capitec’s old rating incorporated the assumption that the authorities would give depositors better protection if things ever went horribly wrong.

The reserve bank attacked this implicit criticism of its bailout, saying the small haircut was actually better than the market expected.

In Moody’s eyes, Capitec and African Bank are very similar companies.

Both Capitec and the reserve bank put out statements criticising Moody’s and arguing that Capitec is in fact a far sounder bank.

But Moody’s also said it is concerned with the growing inherent risks of unsecured lending. While Capitec does a lot of unsecured lending, it was practically all that African Bank did.

Du Plessis said Capitec “completely disagrees with the downgrade”.

According to him, the review came as a surprise because in May, Moody’s had evaluated the bank and it had scored at a higher level.

“We are very different from African Bank. African Bank was a lending institution. We are a lending, deposits and transaction bank. This is a kneejerk reaction by Moody’s.”

Capitec has further highlighted the differences, arguing it had a more diverse source of funding.

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