As Capitec Bank takes a battering from credit rating agencies, its shareholders are becoming jittery and more concerned about the future of their investments in the bank.
According to Business Day, rating agency Moody’s cut Capitec’s debt two notches and placed the bank, which largely lends to poor people, on review for a further downgrade.
It is said that Capitec executives have been talking to bondholders and major shareholders since Friday night to allay concerns over its debt downgrade.
“Illogical downgrades”?
Business Day reports that one analyst who did not want to be named said Moody’s announcement was illogical.
“The Reserve Bank did provide support for African Bank, yet Moody’s downgrades Capitec on the view the Bank did not help African Bank and would not help any distressed bank in future.”
Capitec and African Bank were “radically different”, the source said, as Capitec generated about 35% of its income from noninterest revenue, whereas African Bank had a different model.
Kokkie Kooyman, head of Sanlam Investment Management Global, also agreed and said the cut was “unwarranted”.
“They are overreacting to the African Bank issue more than to the economic deterioration. Capitec is well-capitalised and well-provisioned. Moody’s should have done more homework.”
Capitec shares recovered somewhat to close 2.7% lower at R210.20 on Monday after falling 6% earlier in the day.
The African Bank backlash
The action against Capitec is seen as a reaction to the fallout from the African Bank’s spectacular implosion last week when the Reserve Bank had to bail it out after continuing to underestimate its capital needs and bad debts.
The downgrade could shrink the pool of investors able to hold Capitec debt and will increase the cost of the bank’s future capital raising.
Capitec financial director Andre du Plessis had been calling shareholders and wholesale funders “since Friday night”, marketing executive Carl Fischer said.
“I think the key thing is the challenge rests with some of the fund guys who must invest within a certain risk parameter,” Mr Fischer said. He said the bank’s main priority was to communicate with these funders, and no contact had been made with any other rating agency.
