Business as usual at Capitec

Cape Town - It’s business as usual at Capitec [JSE:CPI], Charl Nel, head of communication at the bank.

"Our aim is to become the best retail bank in the world. Today we start working to better our rating for the future. Life goes on and hard work lies ahead," he told Fin24 on Wednesday.

Fin24 asked Nel a few questions to put the recent ratings downgrade of the bank by Moody's into perspective.

Explain what the downgrade means.

We (you and I) all have a credit profile, so when we go to a bank, the bank uses this credit profile to determine what the risk is to lend us money.

That risk then determines the interest rate you pay for that money.

A bank’s rating works the same way.

Moody's and other rating companies give a rating to a bank and that rating is then used to determine the risk of lending to that bank by capital providers.

This in turn determines the interest that a bank pays when it goes to investors to raise money.

In short, it means that Capitec might pay more for money we raise on the market in future. Other than this, there is no effect on the bank.

Capitec Bank doesn’t need to raise money for the next 18 months, as we have enough capital and deposits.

We will work hard for a better rating before we need to raise money on the market.

Did Moody's get it wrong?

Capitec Bank and the SA Reserve Bank (Sarb) indicated that we believe they got it wrong.

Moody’s did not predict the 2008 financial crisis, neither did they predict the recent problems at African Bank.

We believe that we are bystanders in their “search to become relevant”, based on a competitor’s problems.

Explain top management at Capitec's action in buying a large number of the bank's shares to give the share price a boost after it declined due to the Moody's downgrade.

When markets go down due to reasons that are not business related, it creates opportunities for assets to be bought at a good price.

There is nothing wrong with people inside or outside the bank to spot opportunity and then act on it when we’re not in a closed period.

Apparently Capitec's CEO said the half year results "will speak for themselves". Is this a vote of confidence in the bank?

We unfortunately cannot speak about results, but the CEO and other executives are on record saying our company performance is in line with our budget expectations.

Apparently Capitec pays Moody's a lot of money to assess the bank. Put that in context please.

It is standard practice that banks and other companies get credit ratings to assist them in raising funds in domestic and international markets.

Moody’s and other ratings agencies are commercial organisations that do this work and it is logical that they do not work for free. Auditors also get paid for the work that they do.

- Fin24