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Viceroy hits back at Capitec

Researchers dismiss Capitec’s rebuttals, claim consumer exploitation by the bank.

Viceroy Research continues to stand by its claims that Capitec is uninvestable and should be placed under curatorship, issuing a new report questioning the bank’s lending practices.

The report, A rolling loan gathers no loss, marks the third separate occasion in which the short-seller claims Capitec’s loan book is massively overstated and that its provisioning for bad debts is inadequate. It also addresses Capitec’s dismissal of Viceroy’s January 30 report on the bank,  A wolf in sheep’s clothing, and contains information submitted to the three-man research outfit by the bank’s clients and staff.

Read: A swing and a miss: Capitec on Viceroy’s latest report

Capitec has on two separate occasions issued Sens statements dismissing a number of Viceroy’s claims, including that the  lender misrepresents the balance of its unpaid loans by rescheduling said loans through the issuance of new loans. In its detailed rebuttals, the bank pointed out flaws in Viceroy’s methodology, calculations and use of data. Viceroy, in its latest report, defends its research and conclusions.

The report also contains allegations of consumer exploitation by the bank.

Despite Capitec’s claims that it does not issue new loans to clients in arrears, Viceroy citing unnamed debt counsellors, banking clients and employees of the bank claims otherwise. According to the researchers, this practice allows Capitec to have a high “cure” rates on delinquencies relative to its peers.

Citing an internal communication dated February 8 from the bank’s head office to its branches, it alleges that Capitec has increased the maximum number of loans to which consumers are entitled to five, comprising four term loans and one credit facility. “Capitec should disclose to its investors and borrowers why it has amended this policy while recently stating they have adequate risk policies in place… If the maximum number of loans per customer has increased, we believe this will drastically increase the risk of Capitec’s loan book and corroborates our thesis that over-indebted customers finance existing loans by taking out fresh loans.”

The research team claims that Capitec’s staff are incentivised to sell the maximum amount of credit to clients irrespective of whether the client can make repayments. “Pay raises are dependent on credit issued to clients. Failure to extend the maximum amount a client qualifies for is classed as an undersell and reflected upon in performance reviews.”

It claims to have evidence of Capitec abusing the debit order system such that its own loan repayments take priority over those of other lenders when clients have insufficient funds in their accounts.

Viceroy also attempts to disprove media reports that Capitec chief executive Gerrie Fourie bought shares to the value of R1.5 million in the bank as a show of confidence in the bank, following Viceroy’s initial report. “We believe this is intentionally narrow-minded when viewed in the context of the net market sale of R49 million worth of Capitec shares by Fourie in 2017. Collectively, directors sold R406 million Capitec shares on market in 2017 alone.”

It also restates a connection between Capitec and Steinhoff, and attempts to draw parallels between Capitec and failed lender African Bank, both of which have been dismissed by the bank.

An analyst at a prominent asset manager said the anecdotal evidence contained in the report would likely create negative publicity for Capitec but does not prove that the bank is uninvestable, as claimed by Viceroy.

“Capitec remains well-capitalised, highly liquid and has conservatively provided for bad debts in our view. However, the share is still overvalued in our view, so we see further downside risk to the share price, but Capitec is unlikely to suffer the same fate as [the old] African Bank, which ended in curatorship. You could drive a bus between the bad debt provisioning policies of Capitec and [the old] African Bank, with Capitec being much more conservative,” the analyst told Moneyweb on condition of anonymity.

It remains unclear as to whether Viceroy has discussed its concerns with Capitec since publishing its initial report. At the time, Viceroy head, Fraser Perring, told Moneyweb@Midday that it did not engage with Capitec management as the information cited in the report was in the public domain. Fourie told Moneyweb last week that Viceroy did not respond to its invitations, issued via social media and in media interviews, to engage.

Although Fourie, at the time would not speculate on the purpose of the report, he said Capitec was likely an “easy target” given its valuation. The bank’s price-to-earnings (P/E) ratio – a valuation method used to compare current share prices to earnings per share, with a higher ratio pointing to higher earnings growth – is significantly higher than that of the country’s four other listed banks.

He said the timing of the Viceroy report into Steinhoff allowed it to gain some form of credibility. But said the research outfits’ claims still need to be interrogated when Steinhoff publishes its restated results. Steinhoff management are busy tending to more pressing matters to respond to the report, he said.

Viceroy published a report on Steinhoff in December 2017, a day after the retailer reported accounting irregularities and the resignation of Markus Jooste as chief executive. The retailer, whose share price has plummeted, has since restructured its executive team, faced a liquidity crunch and is subject to investigation in Germany and South Africa, the countries in which it is listed.  

Viceroy, which has also questioned the South African Reserve Bank’s statement in support of Capitec, said it would share information gathered from third parties such as banking customers and staff with the central bank and National Credit Regulator.

Shares in Capitec closed 3.74% lower at R813.26.

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Starting to worry about Capitec…

where are the regulators?…..and why are top management of Capitec so profusely PROTECTED by some financial commentators?

When an entity is protected by government and some financial commentators, one should worry.

Their auditor never said anything, I wonder why is that since it’s work is essentially being questioned.

That’s exactly what Viceroy wants you to do Gemini. They want you to get worried –
they want you to ignore credible commentators that have picked holes in their report – they want you to ignore the Reserve Bank’s take on Capitec – they want you to sell your shares in a panic. Then they make lots of money. It’s as simple as that!

Titanic happenings have in common many things, but not worry. In fact, moenie worry nie, bond them.

I am starting to worry about SA investors and regulators, they can be influenced by a three member business unit, getting their information from the internet and their own highly educated finance force in SA, can’t get to the same conclusions.

I’m confident that we needn’t worry about Capitec.

We SHOULD, however, be worried about the motives behind the ViceRoy attack. It is clear that they pick soft targets.

They come much softer than:
* a rapid growing, industry disrupting bank,
* in the unsecured lending market,
* following this industry’s history with predecessors (African Bank).

What is even more worrisome is ViceRoy’s complete lack of moral fiber and their utter disregard for due process. They could have reported Capitec directly to the NCR or SARB with their claims.

Here are three guys who prowl the JSE, looking for a soft target and attack it with sensationalist media reports aimed, not at rectifying wrongs, but at completely destroying companies. All of this, so they may benefit as a short-seller.

Do they for one moment stop to think that Capitec employs (feeds) more than 14,000 households in South Africa?

If they are not stopped they will strike again, following Zuma, the SA economy faces insurmountable challenges and a rogue sensationalist short-selling analyst groupie is the last thing South Africa needs right now.

ViceRoy’s tactics are deplorable and they should not only be stopped but criminally charged for market manipulation.

What’s pulling Capitec through at the moment is their reputation with their clients who love, engages with and even defend the brand. Viceroy may have dented investor confidence, but client confidence remains intact.

Viceroy is right. The SARB do not want this to be investigated. People that borrow money easy without security in place struggle to repay. Capitec must adhere to IFRIS and write off bad debt, or sell it on if they can get a good price. It is a matter of time and it will be over. This failure is going to be big, soon the big companies may sell their shares and run.

It’s actually got nothing to do with the SARB. Liquidity isn’t the issue (yet): irresponsible lending is. The NCR should be taking note. And of course, yet again, the auditors.

Yes well anybody that thinks Capitec will come out and say “yes sorry we made a mistake” must stay in kindergarden.

High interest rate loans to poor people AKA ‘loan sharks’ IMO. How much of their loans are to provide people with finance to acquire assets?

The system is so messed up, the rich are the most leveraged and at the lowest interest rates possible… then economist wonder why the breach in wreath.

Lending should be a function of the state, Capitec is just adding to the wreath gap..

How much of their loans are to provide people with finance to acquire assets

That should explain to you why interest rates are higher. Unsecured loans – loans without the backing of an asset – is much. much more risky than a mortgage.

It is about risk reward. If you look at the % of net interest that Capitec writes off as bad loans ~40% currently this is in line with what the big 4 banks write off on its books.

If the state were to provide this function it would not be cheaper. The risks stays the same. It will only be very inefficient and open to corruption. I struggle to understand how anybody can advocate more state intervention in SA given the state of our state owned entities that have gobbled up billions of taxpayer money in fruitless and wasteful expenditure.

But why not establish mutual banks where the banks clients own the bank? We already have stokvels, mobilise this capital for the benefit of the people. Europe are full of examples of mutual banks. Volkkas (now ABSA) Sanlam Santam etc all started life as mutually owned organisations run for the benefit of its members.

Excellent comment but i respectfully ask you to comment more harshly than “fruitless and wasteful expenditure”. Its not wasteful it was downright FRAUD,THEFT and COLLUSION to commit THEFT of BILLIONS of Rands by SOE’s and ZUMA Mafia.REad Presidents keepers book and you realise its chinese,italian and indian mafia involved in all tender rigging and this combined with the SOEs over the years results in at least ZAR 1TRILLION of theft !!1TRILLION of theft !!1TRILLION of theft !!1TRILLION of theft !!1TRILLION of theft !!1TRILLION of theft !!1TRILLION of theft !!1TRILLION of theft !!

I agree about stokvels etc notwarren but suspect a twist. Part of Capitec’s cockiness is that they pretty much know that SARB will give them a softish landing if their fuel runs out. I own Steinhoff from pre-Viceroy; I ain’t buying Capitec.

So, my point Capitec IS a ‘loan shark’, they do not provide loans to poor people to buy assets.. Economics 101 trivial ist risky, oan shark business always is but F$%^& exploiting people that did not attend Economics 101.

We all see the issues, tell me something about the system I do not know.. then some people say if you haven’t seen it, it doesn’t exist..no?

Do you know of special caped loans rates subsidize set up by Argentina to finance first time home owners? They come up with products now and then to facilitate good credit to poor people. Funny, some wealthy people were caught there buying lofty houses through the mechanism..

China certainly thinks more than a little central planning is required to keep capital markets in check..do you think they are ok?

Classical ‘loan sharks’ AKA Capitec leads to widening in the wealth gap

The roll overs with loans if true is an area of great concern as this in itself does not provide a true reflection of the banks profitability.

Any bank that allows roll overs by opening up new loans to clear the old loan will with time head into a pie hole which it will not be able to climb out off unless bailed out by the SARB.

If I am correct in my understanding furthermore if the new legislation is passed by the government to write off all debt for persons earning R 7500.00 or less per month one does not have to wonder how this is gong to affect the bottom line of all lenders.

Viceroy has a point but having said that why are they at this point in time hitting SA so hard with their prognosises on our various institutions ?

Their views definitely fall in the public domain with the sole purpose of swaying public opinion,

Who is feeding them with information ? What is the true motivation for their actions ? Can’t just be short selling or could their motive be to cause instability, revenge or cause reputational damage to SA companies and if so why ?

Burnt by Steinhoff I have a nasty suspicion that it’s information SA journo’s and analysts may be too scared or “captured” to act on. SA may still be a cosy little closed shop pond.

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