Business Day

Capitec resilience is egg on Viceroy’s face

- Sithole (@coruscakha­ya) is an accountant, academic and activist.

ext week Capitec will release its latest results for the six-month period ending August 2021. The report will provide a snapshot of the bank’s performanc­e during the trying times that have seen many South Africans and many of the bank’s clients struggle with Covid-19 turbulence. The results reported by its peers in the sector indicate that SA banks have navigated the crisis quite admirably.

As an interim picture rather than the full account of the bank’s performanc­e over an entire year, next week’s report will not be as voluminous as the annual report. The reason for the difference is an intersecti­on between practicali­ty and usefulness. The preparatio­n process for financial statements

particular­ly for regulated entities is notoriousl­y laborious. When one considers the even more frequent internal reports that banks have to provide to the regulators, it is easy to see how draining the reporting process is for such institutio­ns. But as companies that take public deposits, the public interest profile of banks is more elevated than that of other listed companies.

The ability to make informatio­n available in a useful manner to the public is a basic expectatio­n for listed companies. The usefulness of the informatio­n is amplified when it is current rather than old and outdated. Beyond that, the need for transparen­cy is balanced against considerat­ions of market sensitivit­y and keeping your cards close. Within those considerat­ions, the possibilit­y of informatio­n gaps is wide. While the investor public may be keen to know exactly how much the investment bankers that drive profits make, such disclosure­s would make it easy for competitor­s to know what to offer as enticement for such bankers to jump ship.

In addition, as financial reports provide a retrospect­ive snapshot, their utility is stronger for those keen on historical informatio­n rather than those seeking to map out future expectatio­ns. It is in this gap that the role of research reports becomes important. For investors keen to make a decision on the prospectiv­e rather than the retrospect­ive, the insights contained in the research reports go a long way towards covering this informatio­n asymmetry gap.

When Viceroy published its report on Capitec in 2018, it was taken seriously, like all research reports. As a report that purported to unpack the granular details that Capitec’s financial statements had avoided, it naturally elicited interest from many stakeholde­rs. The doom it predicted led some punters to revisit their exposure to Capitec. For regulators and investors who thought the regular reports they receive from Capitec were an accurate reflection of its state, the Viceroy report was troubling.

As it turned out though, the report was less than accurate and tended towards fabricatio­n. Since then Viceroy has been fined R50m after thorough investigat­ions tested the alleged informatio­n asymmetry and found it to be less pervasive than Viceroy stated. Viceroy insists its report was right and refuses to be “scapegoate­d” by the Financial Sector Conduct Authority. The problem for Viceroy, however, is that the informatio­n asymmetry that is inherent in published annual reports is always narrowed down by the passage of time as the sum of prediction­s and speculatio­ns used in preparing financial statements is tested against reality.

For Capitec, Viceroy’s estimation that its loan book was about to implode and sink the bank has been tested against the type of economic interrupti­on that does indeed collapse debtor books. Capitec and all SA banks have survived that with some distinctio­n. The insistence by Viceroy that its prediction­s remain accurate even in the face of reality means that rather than benevolent researcher­s keen to help us all bridge the informatio­n asymmetry, Viceroy did a better job of bridging the financial windfall for its stakeholde­rs whoever they turn out to be.


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