Bad report hits Capitec

2018-01-31 13:30
Researchers who broke Steinhoff take aim at SA bank, shares slump.

Researchers who broke Steinhoff take aim at SA bank, shares slump. (File)

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WATCH: Capitec responds to Viceroy report

2018-01-30 16:19

Viceroy, the US-based research group that exposed accounting failures at embattled global retailer Steinhoff, has struck again, this time exposing Capitec Bank for alleged "predatory finance." Watch as Capitec responds to this latest report. WATCH

The financial research group whose analysis almost closed Steinhoff took aim at Capitec bank on Tuesday.

Capitec Holdings shares slumped by up to 25% after U.S. firm Viceroy Research said the bank overstates its financial assets and income, claims which the lender rejected.

Viceroy Research shot to prominence in December when it published a report questioning the finances at Steinhoff, which later admitted “accounting irregularities”, triggering an 85% share slide.

Capitec shares recovered a little by mid-afternoon, and were trading 7,2% lower at R876 per share, compared with the previous day’s closing price.

“We believe Capitec is a loan shark with massively understated defaults masquerading as a community microfinance provider,” Viceroy said in a report.

“We believe the South African Reserve Bank (SARB) & Minister of Finance should immediately place Capitec into curatorship,” the report said.

SARB, however, sprung to Capitec’s defence on Tuesday, saying the local bank “is solvent, well capitalised and has adequate liquidity”, and that it “meets all prudential requirements”.

Viceroy said based on household economic indicators and other macro factors, the projected appetite of the market for microfinance is drastically overestimated.

Viceroy believes loopholes are being used to sustain unaffordable borrowing at Capitec.

These include consolidating previous loans, restructuring or consolidation fees, initiation fees and service fees which, in the research group’s view, all hide “the true reality of a business struggling in a sector where historically, businesses have collapsed”.

“In the unsecured lending sector, there appears to be only one company unaffected: Capitec ... We implore the appropriate authorities to place Capitec under custodianship before further liquidity issues arise,” the Viceroy report stated.

“Recent volatility in the mining sector, the introduction of the new mining charter and a massive spike in unsecured credit defaults evidenced in the most recent National Credit Regulator’s report of 2017 all raise alarms that Capitec is playing a very dangerous game.”

Viceroy believes Capitec’s “concealed problems” resemble those seen at African Bank Investments prior to its collapse in 2014. The SARB placed African Bank under curatorship at the time.

The report claims South Africa is in the grip of a household debt crisis exacerbated by easy access to microfinance.

Capitec responded to Viceroys’ claims in a statement to the Johannesburg Stock Exchange on Tuesday.

“We believe our corporate governance is strong and our communications and disclosures are, and always have been, transparent, clear and to the point,” the company said.

“On the face of it, the report is filled with factual errors, material omissions in respect of legal proceedings against Capitec and opinions that are not supported by accurate information,” it added. Viceroy claimed Capitec overstates its loan book by as much R3 billion a year by issuing new loans to defaulting clients.

Capitec would need to write off R11 billion of its loan book to accurately represent the delinquencies and risks in its portfolio, Viceroy added.

In September last year, Capitec Bank reported a 17% increase in half-year earnings on steady client number growth.

— with Reuters and Fin24

Read more on:    pietermaritzburg  |  capitec bank

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