Capitec Bank has released its own detailed report to counter the damning allegations made by the Viceroy Research group, going into detail to show how the findings are "flawed and misleading".
In an eight-page statement released on Monday, the bank denied all allegations made against it – at the same time slamming Viceroy's findings, which led to the financial institution's share price temporarily dropping more than 20 percent last week.
Viceroy claimed the reconciliation of loan-book values, maturity profiles and cash outflows imply Capitec is allegedly either fabricating new loans and collections, or refinancing about R2.5-billion in principal per year by issuing new loans to defaulting clients.
Legal documents – which Viceroy claims to have – allegedly show that Capitec is advising and approving loans to delinquent customers in order to repay existing loans. These documents reportedly show Capitec engaging in reckless lending practices, as defined by South Africa's National Credit Act.
Capitec confronted three of the main allegations made against it:
1) That its loan book is irreconcilable
Capitec showed that its loans and advances reconcile, and are not misrepresented by including rescheduled loans through the issuance of new loans, as alleged by Viceroy. The bank said rescheduling is not included in the loan sales figures it provided in its report.
In its report, Capitec showed figures from its loan book between 2015 and 2017. It showed closing balances considerably higher than opening balances each year.
"We furthermore confirm, that we do not advance loans to clients who are in arrears with their Capitec instalments," Capitec said.
2) That it overstated its loan book
Capitec said its arrears analyses, compared to other credit providers, are different in terms of granting, pricing, write-off and provisioning policies.
The bank said, unlike other financial institutions, that it writes off loans when the loan is past 90 days in arrears, or when the client's account is handed over to external debt collectors.
"The omission of these facts, along with statements in the Viceroy report alluding to Capitec having impossibly low arrears and massive write-offs, furthers its cause of creating doubt and uncertainty about Capitec, instead of creating an understanding of our conservative provision model," it said.
"The Viceroy report analysis does not take the different approaches and the conservatism of Capitec's write-off policy of CD3+ into consideration. No adjustment to the net loan book is therefore required," Capitec said.
3) That it rolls over existing unpaid loans by issuing new loans
Capitec said the origination of new debt follows the credit-granting process – which incorporates the comprehensive assessment of the clients' behaviour, affordability and source of income, using among other sources the credit bureau, bank statements and payslip information.
"When existing clients apply for further credit, a full credit assessment is conducted. If a client qualifies for further debt, credit can be extended as a further credit agreement in addition to the current debt, or the client can have [their] existing debt consolidated into a new credit agreement. This option is only available for clients if installments are up to date and clients have a satisfactory credit-risk rating," the bank said.
It said the rescheduling of loans is aimed at assisting clients whose circumstances have changed since taking up credit, and to manage part of the collection process.
"Rescheduling is a process applied by most mature credit providers. Where clients have existing debt and are experiencing difficulties in repaying installments or anticipate that they will experience difficulties, the bank will consider the merits to reschedule the debt based on prescribed criteria," Capitec said.
"The client is evaluated on specific rules to evaluate whether the client qualifies for the loan to be rescheduled... Rescheduling is a formal amendment to an existing loan contract, and rescheduled loans are therefore not included in loan sales, as no new credit is granted."