ON THE RECORD: Capitec CEO Gerrie Fourie hits back at Viceroy ‘attack’

JOHANNESBURG — In a press conference in Cape Town on Tuesday evening, Capitec CEO Gerrie Fourie addressed concerns raised in the latest Viceroy report. Fourie brushed off several claims from Viceroy while accusing the short seller of not doing its homework properly. The briefing was short and didn’t include questions, but this saga is set to drag on especially amid the seriousness with which investors took Viceroy’s previous report on Steinhoff. – Gareth van Zyl

Read more: Viceroy targets Capitec: Bombshell report says bank is ‘wolf in sheep’s clothing’

Read more: Here’s what analysts are saying about Viceroy’s report on Capitec

We stress in certain areas on the high-risk clients, lower income clients, and we’ve communicated that, and given our transactional base it gives us that opportunity to do it. If I look at the report – we brought out a full report, our SENS statement given the questions that have been asked, you’ve got access to it. I think I just want to highlight certain things that maybe has not been mentioned in the SENS. The first thing is we got our financial people this morning to analyse the report and to go through the report and to see if we can balance it. We’re struggling to understand to reconcile the numbers that they’ve done on the repayments of loans in a particular year. We’ve published a figure of R18bn. They are at R16bn. If we look at our arrears we’re talking R5bn. They’re talking R3bn. We don’t understand how they’re getting to those numbers and we’re still analysing and try to see if we can get to a better understanding, and we’ll keep you up to date.

What we believe is there’s a lot of factual incorrectness in these numbers. They’ve done a comparison, for example, on arrears where they’re looking and comparing us on our arrears, as to why are our arrears so low? It’s a very straightforward answer. We write-off a loan if it’s in arrears after 90-days. Other people don’t write it off. They keep it on their books for 180-days and longer. In our case, if a client is in arrears, maybe he’s got 2 or 3 loans. The moment that client is in arrears with one loan we provide on all loans and, like I said, we write-off at 90-days. So, we haven’t got non-performing loans so that makes it extremely difficult or you can’t compare our arrears with other arrears.

I think if you look at our risk appetite. The way we analyse clients we’re very strict on affordability. On our behavioural model, where we actually look at the client’s behaviour, external, and internal, as well as banking, as well as we look at where he’s employed. So, we make differentiations between people that’s employed in a high-risk area. So, we treat credit completely different. I think if you look at a comparison between ourselves and African Bank, when the demise of African Bank happened we made it clear that we are different before, and I think everyone understood it afterwards that there’s a difference. If you look at we’ve got a very strong transactional base. We’ve got retail funding and then our credit risk appetite is completely different. If you just look at insurance. Insurance was always part of our fees and with the new regulations that came in last year, (the R4.50), we’re doing it on a declining balance. For example, if a client had R100k, and he’s repaying that amount and it drops to, let’s say to R20k. We’re only charging the credit life on that R20k where other organisations is on that initial capital and overstating it, and charging him an extra fee.

We’re very strong on the compliance side and on the regulatory side. I think what is also important is, if you look at the cases that they refer to. They got that from court papers. I think it’s conveniently, but they haven’t published opposing papers. Those opposing papers are available so, it’s nice if you’ve got a one-sided attack. If you look at the 2 or 3 clients they refer to. It’s interesting … that particular client was never in arrears with ourselves. He always repaid us. He repaid all his other credit providers. He always had extra cash available, and when he was retrenched we covered his loan fully through our retrenchment recover, and exactly the same with other clients so, we’re quite comfortable with our affordability and we’re quite comfortable with what’s happened.

I think maybe the other area that I can emphasise is on the people’s’ side. We’re extremely focussed on our people. I believe it’s important that our people are inspired. They understand where we’re going, and why we’re doing certain things. It’s interesting that they’ve just asked people that has left us or people that was dismissed, and you will get a one-sided story if you only go and ask certain people. I don’t know why they didn’t have interviews with ourselves or certain people that’s currently employed. It’s interesting to me how branch managers are reflected that, on average, is getting R13k salary. When factually, the average R22k so, there’s a lot of their information that is incorrect. If I look at the deposit insurances side. They’re talking about a R2.3bn exposure. Proposed regulations came out in May. It has not been finalised and we’re still working with the industry. We’ve looked at it and the exposure is much less. Again, it’s just showing there’s a different approach.

Gerrie, can you may be speak a little bit about the people, and is their money safe at Capitec Bank?

Well, trust is a very important aspect for retail deposits to actually deposit their money with ourselves. We’ve always said we want to build a bank that’s 100-years old, plus we’ve always been transparent with our people. If there’s bad news we communicate that and say that. I believe that the biggest compliment we can get is the statement from the Reserve Bank. They get our figures monthly, and they analyse it. They sit every 6-months with us going through in detail so, I think that gives you a clear indication that there’s no concerns.

We will have to wrap up and then go to other scheduled appointments, then we can maybe come back a little bit later but we unfortunately have certain appointments that we have to stick to at this moment, thank you very much.

Latest press release from Capitec:

For immediate release: Cape Town: Tuesday, January 30, 2018 17:30

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.

Capitec CEO Gerrie Fourie
Capitec CEO Gerrie Fourie.

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.

  1. 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.

  1. 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).

  1. 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.

  1. 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).
  1. 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.

  1. 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.

  1. 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.

Thank you for your commitment to fair and accurate reporting. Capitec Bank remains committed to transparency and full disclosure. 

Issued by: Capitec Bank South Africa