Cape Town - Ratings agency Moody’s Investors Service (Moody's) has downgraded Capitec Bank Limited [JSE:CPI] (Capitec) by two notches, and placed it on review for a further downgrade because of a lower likelihood of support from the SA Reserve Bank following the African Bank fiasco.
Moody's cited a lower likelihood for sovereign systemic support based on decisions recently taken in relation to African Bank Limited [JSE:ABL] (African Bank), and heightened concerns regarding the risk inherent in Capitec’s consumer lending focus as reasons for the downgrade.
The SA Reserve Bank said in a statement following the downgrade that while the Bank respects the independent opinion of rating agencies, it does not agree with the rationale given in taking this step.
The Bank said the approach taken by the Sarb to any resolution to address systemic risk will always be based on the circumstances and merits of the particular prevailing situation.
READ: Rescue plan for African Bank
The Bank also said Moody’s incorrectly justifies the rating action on the basis that Capitec follows a similar business model to African Bank. "The two lenders do not share the same business model.
"While both are active in the unsecured segment of the market, Capitec follows a very conservative approach to risk and prudent provisioning practices, and considerable diversification has been taking place in a steady manner in product, client and revenue streams," the Bank said.
The Sarb said in the case of African Bank substantial support was provided. "Bond holders and wholesale depositors are taking a 10% haircut, which is generally regarded as being very positive given that the trades following the announcement of African Bank's results were taking place at around 40% of par.
"Moreover, all retail depositors were kept whole and are able to access their accounts fully," the Sarb said.
The Sarb said the South African banking sector remains healthy and robust, and Capitec’s publicly available data on the BA900 returns, which are submitted monthly and published on the Sarb’s website, indicate the continued good growth that the bank is experiencing.
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