https://www.polity.org.za
Deepening Democracy through Access to Information
Home / Recommendations RSS ← Back
Close

Email this article

separate emails by commas, maximum limit of 4 addresses

Sponsored by

Close

Article Enquiry

Capitec: A wolf in sheep’s clothing – Viceroy Report

Close

Embed Video

Capitec: A wolf in sheep’s clothing – Viceroy Report

Capitec: A wolf in sheep’s clothing – Viceroy Report
Photo by Reuters

30th January 2018

ARTICLE ENQUIRY      SAVE THIS ARTICLE      EMAIL THIS ARTICLE

Font size: -+

  • Capitec: A wolf in sheep’s clothing – Viceroy Report
    Download
    3.31 MB
Sponsored by

Based on our research and due diligence, we believe that Capitec is a loan shark with massively understated defaults masquerading as a community microfinance provider. We believe that the South African Reserve Bank & Minister of Finance should immediately place Capitec into curatorship.

Capitec Bank Holdings Limited (JSE: CPI) is a South Africa-focused microfinance provider to a majority low-income demographic, yet they out-earn all major commercial banks globally including competing high-risk lenders. We don’t buy this story. Viceroy believes this is indicative of predatory finance which we have corroborated with substantial on-the-ground discussions with Capitec ex-employees, former customers, and individuals familiar with the business.

Advertisement

Viceroy’s extensive due diligence and compiled evidence suggests that indicates Capitec must take significant impairments to its loans which will likely result in a net-liability position. We believe Capitec’s concealed problems largely resemble those seen at African Bank Investments (JSE: AXL) prior to its collapse in 2014.

We think that it’s only a matter of time before Capitec’s financials and business unravel, with macro headwinds creating an exponential risk of default and bankruptcy.

Advertisement

This report will provide underlying information and analysis we believe supports the following conclusions:

  • Reconciliation of loan book values, maturity profiles and cash outflows imply Capitec is either fabricating new loans and collections, or re-financing ~ZAR 2.5bn – 3bn (US$200m-$240m) in principal per year by issuing new loans to defaulting clients.
  • Legal documents obtained by Viceroy show Capitec advising and approving loans to delinquent customers in order to repay existing loans. These documents also show Capitec engaging in reckless lending practices as defined by South Africa’s National Credit Act. This corroborates Viceroy’s loan book analysis.
  • As a consequence of re-financing delinquent loans, Viceroy believes Capitec’s loan book is massively overstated. Viceroy’s analysis against competitors suggests an impairment/write-off impact of ZAR 11bn will more accurately represent the delinquencies and risk in Capitec’s portfolio.
  • Legal experts that we have spoken to believe that the outcome of an upcoming reckless and predatory lending test case in March 2018 will be used to trigger a multi-party litigation refund (class action). We believe that, at a minimum, Capitec will be required to refund predatory origination fees primarily related to multi-loan facilities; an estimated ZAR 12.7bn.
  • Viceroy’s investigations suggest that Capitec’s prohibited and discontinued multi-loan facility lives on, rebranded as a “Credit Facility”. Former Capitec employees have corroborated this. Despite its perception as an affordable lender, Capitec’s implied interest rates are significantly true of the maximum allowable rates in South Africa.
  • South Africa’s microfinancing sector has been the graveyard of numerous Capitec competitors who chased the same meteoric growth Capitec displays, largely due to low acceptance and mass delinquencies. We see no operational difference between Capitec and its ill-fated predecessors, including African Bank.
  • Former employees consider the business to still be an outright loan-shark operation, where fees are key. Some former employees believe they were fired for not deceiving borrowers and failing to meet rescheduling targets on impaired/defaulting loans.
  • Jean Pierre Verster, chairman of Capitec’s audit committee, is/was indirectly short Capitec through Steinhoff. We believe this is an oversight, and understand Verster to be an excellent analyst on the short side. We encourage Verster to raise the concerns within this report to company auditors and recognise Capitec’s resemblance to his previous African Bank short.

Given what we believe is a massive overstatement of financial assets and income, together with opaque reporting of loan cash flow and reckless lending practices, we believe Capitec is simply uninvestable and accordingly have not assigned a target price.

Report by Viceroy Research

EMAIL THIS ARTICLE      SAVE THIS ARTICLE ARTICLE ENQUIRY

To subscribe email subscriptions@creamermedia.co.za or click here
To advertise email advertising@creamermedia.co.za or click here

Comment Guidelines

About

Polity.org.za is a product of Creamer Media.
www.creamermedia.co.za

Other Creamer Media Products include:
Engineering News
Mining Weekly
Research Channel Africa

Read more

Subscriptions

We offer a variety of subscriptions to our Magazine, Website, PDF Reports and our photo library.

Subscriptions are available via the Creamer Media Store.

View store

Advertise

Advertising on Polity.org.za is an effective way to build and consolidate a company's profile among clients and prospective clients. Email advertising@creamermedia.co.za

View options
Free daily email newsletter Register Now