Viceroy sticks to its Capitec view

• Outspoken short seller defends its critical approach to Capitec’s financial figures despite the Reserve Bank’s statement of support

Short seller Viceroy Research has insisted the Reserve Bank should not rely on Capitec’s financial statements and should place it into curatorship.

Shortseller Viceroy Research has insisted the Reserve Bank should not rely on Capitec’s financial statements and should place it into curatorship.

On Monday, the shortseller released its long-awaited statement in response to the Reserve Bank’s statement of support for Capitec in which the Bank assured the market that Capitec was “solvent, well capitalised and had adequate liquidity”.

The Reserve Bank made this statement after Viceroy claimed last week that Capitec was understating losses and on the brink of insolvency.

“We understand that the [Reserve Bank] has not yet performed an adequate regulatory inspection of Capitec and expect they will do so in due course.

“For the moment Viceroy will respond to [the Reserve Bank], limiting themselves to information contained in the most recent Capitec annual report,” Viceroy said.

But sources in the banking sector said the Reserve Bank’s bank supervision department did not rely on annual reports or results. In terms of the Banks Act, all registered banks and representative offices are required to file financial and risk information regularly with the department.

“Monthly BA [Banks Act] reporting takes place using various BA returns for finance and risk, on either 15, 20 or 30 days,” said Jaco van Wyk, head of group finance at FirstRand. “These returns are not public.”

The Reserve Bank does publish the BA900 form, an itemised balance sheet.

The Reserve Bank was “fully aware of the credit-scoring models and the risk targets that we set when we extend credit”, Capitec said.

In its statement, Viceroy said Capitec’s mechanism of underrepresenting losses was to “pretend” that uncollectable loans of at least R10bn were collectable and accruing interest.

Most of these were in longerterm categories stretching up to 84 months, it said.

Using Capitec’s gross cumulative loss curve for 61- to 84-month loans granted in different quarters, Viceroy concluded that losses on these loans were roughly 1.5% a year, a figure which Viceroy described as “astonishingly low”.

But Capitec said only 7.3% of its credit clients qualified for loans longer than 60 months.

“Viceroy infers that it is impossible for the average American credit-card holder to have similar credit risk as the top 7% of Capitec’s clients.

“We have extensive history and sophisticated models to support our results,” the bank said on Monday.

The actual arrears on 84month loans was 3.1%, not the 1.3% cited by Viceroy.

Capitec also addressed the main issues raised in the initial Viceroy report in more detail on Monday.

Viceroy had not taken into account its conservative writeoff policy relative to its peers, nor had it distinguished between consolidated and rescheduled loans, it said.