By: Capitec Bank
Capitec Bank is deeply concerned about the integrity of a report by Viceroy Research.
We received a copy of the Viceroy research report at 10 am this morning and at no time has Capitec Bank been approached by Viceroy for insight into our business. None of their allegations have been presented or discussed prior to their publication.
We believe our corporate governance is strong and our communications and disclosures are, and always have been, transparent, clear and honest.
We have reviewed the report and it is filled with factual errors and material omissions in respect of legal proceedings and opinions that are not informed by accurate information.
We continue to study the report systematically and are still seeking clarity on some of the allegations.
However, in the instance of transparency and full disclosure, we are responding to the key allegations and inaccurate statements.
- Allegation one: 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.
Viceroy 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.
- Allegation two: Loans granted to delinquent customers to repay existing loans
What the Viceroy report is referring to are the court cases of only three clients. It makes no mention of Capitec’s comprehensive responses in each of these cases which addressed the allegations. Our comprehensive responses are public documents and are available at court and from our legal department. Whenever we grant a loan, we conduct a comprehensive credit assessment based on the BAS principles (behaviour, affordability and source).
- Allegation three: 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 date by which 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 six 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.
- Allegation four: Court cases may result in a class action
The proposition of a class action is highly speculative, subjective and irresponsible as the matter has not been heard in court. Capitec’s solid rationale are not taken into account by Viceroy.
The monthly loans granted were under an over-arching multi-loan agreement, concluded at the outset. Before concluding this agreement, Capitec complied with a standard, comprehensive credit assessment. This consisted of documentation and other information provided by the customer (including bank statements, payslips and answers to questions posed by Capitec Bank), as well as information sourced externally from credit bureaus.
Before each withdrawal under the over-arching multi-loan agreement, Capitec performed additional, supplementary credit assessments. This supplemented and updated the results of the underlying initial assessments, and the aim 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 also makes a credit bureau enquiry to enquire whether the customer had any disqualifying legal statutes (insolvency, administration, etc);
- Capitec also makes 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, the customer 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).
- Allegation five: 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 again 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, which is within the National Credit act (NCA).
The monthly fee is raised within 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.
- Allegation six: There is a correlation between African Bank and Capitec Bank.
This is incorrect. 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. Its transactional business continues to contribute materially to its earnings as reported in our 1H 2018 results. In addition, 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 also 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 of African Bank, as well as other unsecured loan books.
- Assumptions based on opinions of former employees
Employees who are no longer employed by an organisation can make claims that are false. It is devoid of all truth that Capitec Bank has fired any employees ‘for not deceiving borrowers’.
Among 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 deeply concerned about the way in which Viceroy Research conduct their business and our attorneys have registered a formal complaint with the Financial Services Board.
We want to reassure our customers that we are open for business and we welcome the statement from the Reserve Bank that we are solvent with adequate liquidly.