Moody’s move to downgrade Capitec Bank by two notches has been met with surprise and a broad sense of disagreement from those in the know. Many have said that this move is a ‘knee-jerk’ reaction after African Bank’s demise, and is based on very little substance. It has been widely publicised that Capitec is a very different bank from African Bank, and is in a much stronger position. Despite this, the market responded with Capitec’s share price taking a 5% tumble today. One that really, is based on sentiment, especially when you look at the facts that have been put forward by Capitec – facts that are reiterated by impartial experts. One can only hope that Moody’s move doesn’t send a sense of unecessary panic into the sector. – LF
ALEC HOGG: South Africa’s Central Bank disagrees with Credit Ratings Agency Moody’s downgrade of Capitec Bank. Joining us on the line for more is Gerrie Fourie, the Chief Executive of Capitec. Well Gerrie, your share price is down five percent today. Did you anticipate, after seeing the Moody’s report that came out late on Friday afternoon that the market would react in this way?
GERRIE FOURIE: Good afternoon, Alec. Yes, I think we all speculated about what the market was going to do. As we all know, the news from Moody’s forces certain investors to act in certain manners, so we’re not that surprised. If you look at where the share price currently is, it’s trading at round about R205.00 and it look like it’s at a stable point at that level – so far, so good.
ALEC HOGG: But the share price has come back in the last two weeks, from R240.00, so it’s been quite a drop – 20 percent on the whole Abil saga. I guess you’ve tried your best to tell the market how you are different to Abil. People like Mohammed Nalla got the story, but not everybody has read the memo.
GERRIE FOURIE: Yes, Andre du Plessis and I spend a lot of time with investors and the investors’ market, explaining the difference, but I think that if you look at the public, they’re probably not that well informed as to what the difference is between African Bank and ourselves. That’s what we’ve done with our update on Friday, to explain that we have a completely different business model than African Bank. In addition, we put out the five or six differences between African bank and ourselves.
GUGULETHU MFUPHI: Gerrie, it’s Gugu here with Alec. This downgrade: what impact will it have on your capital raising initiatives, going forward?
GERRIE FOURIE: It shouldn’t have an impact now. Our capital adequacy is at 40 percent. On our models, we don’t see that we’re going to need any capital for the next 18 to 24 months, depending on your book growth. In the short-term, it will have very little impact. In the long-term, if we can’t get Moody’s to upgrade us, it will probably will have an impact on the price you pay. Luckily, for us, our retail deposits are growing quite nicely and we can make use of retail and wholesale to fund our activities.
ALEC HOGG: How would you get Moody’s to listen to another point of view? Clearly, and you’ve said it yourselves – I spoke to your colleague Andre Du Plessis, on Friday night – and he said there was a 30-minute conversation with Moody’s, so they’ve made up their minds. The Reserve Bank has said Moody’s is wrong. You’re saying Moody’s is wrong. Mohammed Nalla is saying Moody’s is wrong. How would one get Moody’s to actually reverse its downgrade? Double notch is not much fun.
GERRIE FOURIE: Alec, I think there are two things. Our financial half-year results is coming out now in September – round about the 25th of September – and as we said, we’re going to do a trading update on or before the 10th of September. I think Moody’s will then probably get a better insight. In our discussions on Friday, we invited them a couple of times to come and spend time with ourselves, come and go through upgraded models, come and go through our financial statements, and do a proper assessment. Andrew had a 20/30-minute discussion. In May, they were here. Not much has changed since May. When I spoke to them on Friday, I said ‘if you actually go and look at what has changed from May until now, it’s probably more positive because you’ve finished discussing this and our response is that people got at least ten percent and higher salary adjustments’.
That is actually good news for South Africa (long-term), and the agreement has been reached for two and three years as well, so we one would have to see how they’re going to approach it. Hopefully, after our results, they will come and do a full assessment in October/November, and then we’ll have a lengthy discussion and see what the view is then.
ALEC HOGG: How do the other ratings agencies rate Capitec, relative to Moody’s?
GERRIE FOURIE: We’re only making use of Moody’s, so the other agencies haven’t rated us. As a result, I can’t comment on their view at this stage.
ALEC HOGG: So let me just get this right. You pay Moody’s to do a credit rating on you.
GERRIE FOURIE: Yes, that’s correct.
ALEC HOGG: You pay them and then they downgrade you. That’s not much fun.
GERRIE FOURIE: Yes. Unfortunately, if you want to attract investors, you need to have a rating. We did a full assessment on the rating agencies and we decided on Moody’s a couple of years back.
ALEC HOGG: Are you sorry about that decision now? Perhaps the other rating agencies might be a little bit fairer.
GERRIE FOURIE: Yes. I believe that one needs to build a long-term relationship. I think rating agencies may have taken a beating in the last couple of months from being wrong, for example, on the Abil side. One would have to assess it. I think we’re focusing now on making certain that our investors and our retail people are positive and that they understand that it’s business as usual for us. As we said, we’re positive that everything in our current financial results are looking in line with our budget. We have ten days to go and we should have fairly good half-year results.
ALEC HOGG: Gerrie, very quick: is there any impact at the branch level? Are people wanting to cash in their deposits?
GERRIE FOURIE: I had a couple of conversations this morning with branch people and at BCS, and so far, we’re not picking up anything strange. We’ve analysed our stats on Saturday and Sunday, as well as this morning and so far, we’ve seen no dip. What is very positive for us is that the Reserve Bank has supported us. When we spoke to them on Friday, they immediately reacted. You can read in the media statement that they also disagree, so I think that for us it’s very positive that we have the support of the Reserve Bank.
ALEC HOGG: Just as a final question: what do you pay a ratings agency to do a report like this?
GERRIE FOURIE: Alec, in this case, I think its round about R1m, but I’m not certain. It’s Andre’s job to make certain that they’re fair.
ALEC HOGG: It’s proper money, though.
GERRIE FOURIE: It’s quite a lot of money that we pay them.
ALEC HOGG: That was Gerrie Fourie, the Chief Executive of Capitec.
