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Capitec in breach of law, says watchdog

Cape Town - The National Credit Regulator (NCR) has referred an investigation into Capitec Bank Holdings [JSE:CPI] to the National Consumer Tribunal, the bank announced in a SENS report on Thursday.

The NCR alleged that Capitec is in contraventions of credit laws.

The announcement comes at a time when unsecured loans are under closer scrutiny amid consumer indebtedness.

The bank is remaining mum over the announcement.

"We prefer not to comment at this stage as the matter needs to be resolved through due legal process," Capitec's marketing and corporate affairs executive, Carl Fischer said in a post on the bank's website.

The bank was notified in February this year by the NCR alleging that it contravened the National Credit Act 34 of 2005 including in relation to initiation fees charged on one product, Capitec said in a statement.

However, the bank, which makes high-interest loans to low-income consumers, said that it had probed the allegations and believes it will be satisfactorily resolved.

Capitec also noted that it is impracticable to estimate the financial implications.

The bank's shares plunged after the news. The bank's price lost R3.10 (1.61%) to R186.90 by the close on Thursday.

Capitec CEO Riaan Stassen said on Tuesday that the bank believes it applies the most conservative credit criteria in the unsecured credit industry.

Stassen made the statement in the wake of reports that the bank is pushing the lending bubble dangerously close to bursting.

The deputy governor of the South African Reserve Bank on Monday moved to allay fears of a bubble in the unsecured lending sector.

Unsecured loans are not backed by collateral and therefore riskier and more lucrative for banks.

Unsecured loans totalled R453bn in March 2013, an increase of 24% from a year earlier, Lesetja Kganyago said.

Despite unsecured lending not posing a risk to banks, TransUnion on Tuesday released data reflecting a sustained deterioration in consumer credit health, indicating that consumer credit has fallen sharply.

The NCR in February called for a fine of R300m to be imposed on African Bank Investments [JSE:ABL] over its lending policy but the bank is contesting the allegations.

 - Fin24

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