S&P Global Ratings published a bulletin late on Wednesday saying that its ratings for Capitec Bank are not affected by a damning investment report published by Viceroy Research, which lead to a massive sell-off in its share price.
Viceroy’s report, titled Capitec: A Wolf in Sheep’s Clothing, made damning claims against the micro-lender, calling the bank a loan shark headed for insolvency.
The research report said that its analysis pointed to predatory lending practices from Capitec, where clients would be pushed to take out new loans to pay off the old ones, while being charged initiation fees and incurring other costs.
Capitec denied the claims calling the report “flawed and inaccurate” and instructed its lawyers to lay a formal complaint with the Financial Services Board.
In its note, S&P Global Ratings said that its ratings on South Africa-based Capitec Bank Ltd (BB/Stable/B) are not affected by the report or by the market’s reaction to the report.
“In the report, Viceroy Research requests that the South African Reserve Bank place Capitec under immediate curatorship and alleges that the value of Capitec’s loan book is massively overstated.
“The market’s reaction was significant, with the bank’s share price losing over 20% before recovering after the South African Reserve Bank released a statement defending the soundness of the bank’s capitalization and liquidity. To date, the bank has experienced only mild funding outflows and its liquidity remains sound.
“Our ratings on the bank continue to reflect those on South Africa (foreign currency BB/Stable/B), as well as the bank’s strong capitalization and conservative reserving, which is appropriate for high normalized credit losses. We also factor in the bank’s good earnings stability for a monoline unsecured consumer lender,” S&P said.
Following the release of the report on Tuesday, Benguela Global Fund Managers said it too wrote to Capitec Bank Holdings questioning its practice of rescheduling loans to clients.
The boutique investor raised concerns about Capitec’s “aggressive practice of rescheduling arrear loans and advances,” according to a letter dated January 19 and seen by Bloomberg. “We believe this practice has distorted the true performance of your business and warrants some review,” the letter said.