Wrap Text
Viceroy Research Report On Capitec – Addressing The Main Issues Raised In The Report
Capitec Bank Holdings Limited
Registration number 1999/025903/06
Registered bank controlling company
Incorporated in the Republic of South Africa
JSE ordinary share code: CPI ISIN code: ZAE000035861
JSE preference share code: CPIP ISIN code: ZAE000083838
("Capitec" or "the company")
VICEROY RESEARCH REPORT ON CAPITEC – ADDRESSING THE MAIN
ISSUES RAISED IN THE REPORT
We refer to the earlier announcement on SENS today
advising shareholders of concerns about the integrity of
a report by Viceroy Research on Capitec and advising
shareholders that management will review the report in
detail and will respond to same before the end of today.
We are studying the report systematically and are still
seeking clarity on some of the allegations. It is
important to note that the report is flawed with
inaccurate statements.
We respond as follows to the main allegations raised in
the report:
1. Allegation that Capitec fabricates new loans and
collections, or refinances up to R3b in principal per
year by issuing new loans to defaulting clients
With reference to the reconciliation of the loan book,
we can confirm that the estimate in the Viceroy report
does not accurately calculate client repayments. They
use a figure net of fees on loan accounts based on
assumptions regarding the amortisation and capital
repayment profile of the loan book. Their estimate of
capital repayments of R16.7 billion underestimates
actual loan receipts net of fees of R18.6 billion
(receipts less fees) by approximately R1.9 billion.
They also reduce write-offs by an estimate of the
component of write-offs that originate from new sales
in subsequent years. 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.
2. Allegation of loans granted to delinquent customers to
repay existing loans
What the Viceroy report is referring to is the court
cases of 3 particular clients. They make no mention of
Capitec’s comprehensive responses in each of these
cases which addresses each of the allegations
contained in Viceroy’s report. Our comprehensive
responses are public documents and are available at
court or from our legal department. Whenever we grant
a loan, we do a comprehensive credit assessment based
on the BAS principles (behaviour, affordability and
source).
3. Allegation of over-statement of Capitec’s loan book
Our impairment on loans are based on the probability
of default. Loans are written off at the earliest of
when they are in arrears for 90 days or more, or legal
hand-over occurs. 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. Any competitor
analyses requires a further breakdown of their loan
granting, pricing, write-off and provisioning policies
to compare our approach and position on a like for
like basis.
4. Assumption that court cases may result in a class
action
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.
Capitec’s explanations in its answering papers in the
court cases are not taken into account. The monthly
loans were granted under an over-arching multi-loan
agreement, concluded at the outset.
Before concluding this agreement, Capitec concluded
its standard comprehensive credit assessment. This
consisted of documentary and other information
provided by the customer (including bank statements,
payslips and answers to questions posed by Capitec),
as well as information sourced externally from credit
bureaux.
Before each withdrawal under the over-arching multi-
loan agreement, Capitec performed supplementary credit
assessments. Capitec supplemented and updated the
results of the underlying initial assessments, and its
purpose was to check whether the customer still
qualified for the proposed credit.
The process consisted of the following:
• Customers asked to confirm that, ‘since you signed
your last multi-loan agreement, your income is the
same or more’ and ‘since you signed your last
multi-loan agreement, your expenses are the same or
less.’
• Capitec making a credit bureau enquiry to enquire
whether the customer had any disqualifying legal
statutes (insolvency, administration, etc)
• Capitec making a credit bureau enquiry to determine
the sum total of the customer’s current external
obligations, i.e. whether in the period since the
conclusion of the over-arching multi-loan
agreement, he has taken up fresh debt from entities
other than Capitec or settled existing debts with
such entities (as far as credit from Capitec itself
was concerned, this was checked and taken into
account directly)
5. Incorrect correlation between our credit facility and
discontinued multi-loan facility
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.
The initiation fee is only triggered once the client
uses the facility up to a maximum fee agreed with the
client, that is within the NCA.
Monthly fee – this fee is raised as allowed in the
applicable regulations of the NCA. There is a
difference between availability and use of the
facility and interest is charged as contracted with
the client and the full amount used, including
interest and fees, is repayable on a monthly basis.
6. Capitec Bank’s operations are significantly different
to that of African Bank
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.
Capitec Bank has a significant retail deposit book,
unlike African Bank. The result of this is that
Capitec has a low reliance on wholesale funding.
Capitec Bank has a far more conservative approach to
providing credit than African Bank. The provisioning
of Capitec Bank is market-leading and significantly
more conservative to that specifically of African
Bank, as well as other unsecured loan books.
7. Opinions of former employees
Employees who are no longer employed by an
organisation can make claims that are false. It is
patently untrue that Capitec has fired any employees
‘for not deceiving borrowers’. Amongst the many
inaccuracies in the report another exists where it is
claimed that our branch managers earn an average of
R13 219 where the actual average is R22 000 per month.
We are proud of the journey that we have placed our
employees on with the result that many employees are
promoted within the organisation.
We are concerned about the way in which Viceroy Research
conduct their business and our attorneys have registered
a formal complaint with the Financial Services Board.
30 January 2018
Stellenbosch
Sponsor
PSG Capital
Date: 30/01/2018 04:35:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
Sharenet Sites 
