Viceroy hits back at Capitec again

REPORT: CLAIMS CONSUMER EXPLOITATION

You could drive a bus between the bad debt provisioning policies of Capitec and African Bank, with Capitec being much more conservative, says analyst.

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 occasion in which the short-seller claims Capitec’s loan book is massively overstated and 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.

Capitec has twice issued Sens statements dismissing a number of Viceroy’s claims, including that it misrepresents the balance of its unpaid loans by rescheduling them through issuing new loans.

Viceroy, in its latest report, defends its research and conclusions. Despite Capitec’s claims it doesn’t issue new loans to clients in arrears Viceroy, citing unnamed debt counsellors, banking clients and bank employees, claims otherwise. It says this practice allows Capitec to have a high “cure” rate 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.”

It claims Capitec’s staff are incentivised to sell the maximum amount of credit to clients, irrespective of whether the client can make repayments.

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 CEO Gerrie Fourie bought shares to the value of R1.5 million in the bank as a show of confidence, following Viceroy’s initial report.

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

“Capitec remains well-capitalised, highly liquid and has conservatively provided for bad debts in our view. You could drive a bus between the bad debt provisioning policies of Capitec and African Bank, with Capitec being much more conservative.”