Despite Capitec slamming a damning report by Viceroy Research and the SA Reserve Bank coming to the bank’s defence, Viceroy stood by its word and said it could dish more dirt on Capitec.

JSE-listed Capitec Bank has undertaken to relook at its financials after the company’s shares were thrown into a tailspin – and at one stage had slumped 25percent – by a damning report from Viceroy Research.

But analysts slammed the Viceroy report as one-sided and “reckless”.

The report blew the lid off the bank’s alleged reckless lending practices, including “refinancing delinquencies”.

The research group also poked holes in the lender’s loan book.

It said Capitec claimed to have achieved R27.2billion in loan sales in its 2017 financial year and R24.2bn in the previous financial year, which represented more than 50percent of Capitec’s opening gross loan book each year.

Viceroy suggested these figures should be R2.5bn to R3bn lower in each year and called on the SA Reserve Bank and Finance Minister Malusi Gigaba to immediately place Capitec into curatorship.

Viceroy operated anonymously until the beginning of the year, when Fraser Perring revealed himself and two other colleagues, Gabriel Bernarde and Aidan Lau, as the faces behind the firm.

Capitec chief executive Gerrie Fourie yesterday hit back at the research group.

“We strongly refute these allegations and are in the process of gathering information to respond to the claims made in the report with facts. We are committed to providing clear and transparent information that will show that these claims are baseless,” he said.

At a media briefing yesterday afternoon to clarify some of the matters contained in the report, titled “Capitec: A wolf in sheep’s clothing”, Fourie insisted that Capitec writes off bad loans after 90 days.

Viceroy claimed Capitec’s “concealed problems” largely resembled those seen at beleaguered African Bank prior to its collapse in 2014.

It also criticised Capitec for what it termed a massive overstatement of financial assets and income.

“By refinancing delinquencies, Capitec is also creating a false economy within its income statement, as it records interest and fees on delinquent loans which would otherwise be unpaid. This type of loan renewal would be concerning at any commercial bank. However, Capitec being a retail microfinance lender, carrying forward small, unsecured retail loans represents much higher credit risk,” it said.

Capitec said it was not contacted by Viceroy when it was conducting the investigations into the bank and only received a copy of the research report at 10am yesterday.


Asked about the motive behind the Viceroy report, Fourie said: “I don’t want to speculate on the motive for me of great concern is that a report comes out and there are a lot of inaccuracies and they don’t want to talk to us.”

The bank said it was also not approached by Viceroy for insight into its business and none of the allegations had been discussed, tested or verified with management.

The bank’s chief financial officer, André du Plessis, said the bank had a track record of 17 years of total transparency.

Capitec’s share price dropped as much as 25.31percent to R705 a share on the JSE yesterday morning, its lowest level in almost a year, after the damning report was released.

However, a Reserve Bank statement refuting Viceroy’s claims helped the stock to regain some of the losses in afternoon trading when it traded only 7.45percent lower, which took its market capitalisation to about R101.4bn.

Capitec has been the best performing share on the JSE over the past 10 years and its share price peaked on December 29 at R1097.96 a share. Capitec shares closed yesterday 2.96percent lower on the day at R915.92.

The Reserve Bank said it noted a report by a US-based fund manager, adding that as part of its mandate they monitored the safety and soundness of all banks, including Capitec Bank.

“According to all the information available, Capitec is solvent, well capitalised and has adequate liquidity. The bank meets all prudential requirements,” it said.

Viceroy said it had obtained legal documents that showed Capitec advised and approved loans to “delinquent customers to repay existing loans”.

It said the documents also showed Capitec engaging in “reckless lending practices as defined by South Africa’s National Credit Act”.

“As a consequence of refinancing delinquent loans, Viceroy believes Capitec’s loan book is massively overstated. Viceroy’s analysis against competitors suggests an impairment/write-off impact of R11bn will more accurately represent the delinquencies and risk in Capitec’s portfolio.”

Fourie said Capitec believed its corporate governance was strong and its communications and disclosures were, and hadalways had been, transparent, clear and to the point.

“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,” he said.

David Shapiro of Sasfin Wealth said one of the big worries about Capitec was that it was a deposit-receiving institution.

“Unless it addresses Viceroy’s accusations urgently with support from the Reserve Bank it could cause a run on the bank that could be devastating,” he said.

Kokkie Kooyman, a director and portfolio manager at Denker Capital, said Capitec Bank was operating in an industry where there was a high possibility of bad debts. “But if you look at Capitec now, it has evolved over the years and includes transactional banking in its services. Overall, I think it is a one-sided report and the South African consumer is not particularly affected by the high interest rates.

“If Capitec was exposed to a country that was on the brink of recession, then I would say their bad debts would have affected them, but the country is moving to a growth era now,” he said.

Another analyst, who wanted to remain anonymous, said the report by Viceroy was an exaggeration and reckless.

Capitec at end-August last year boasted 9.2 million active clients, making it larger than the likes of FNB, Absa and Nedbank in terms of retail clients.

The bank said last year its lending policies, which were tightened two years ago, had started to pay off for the bank, as it posted its best credit performance since 2014.

Its total arrears declined 2percent to R2.5bn in the six months to August last year, which was only a fraction of its R46.5bn loan book.

Capitec Bank was voted as the best bank in the world by Lafferty Group’s 2017 Global Bank Quality Benchmarking study.