Capitec rating cut by Moody’s

By on August 19, 2014

Moody’s Investor Service (Moody’s) downgraded Capitec Bank Holdings Ltd (CPI) anticipating that South Africa’s central bank will not be able to protect creditors in a failure after the collapse of a rival, South African Reserve Bank (SARB), writes Krysia Gaweda.

Capitec’s international deposit ratings were downgraded to Ba2/NP from Baa3/P-3 as well as its national scale ratings from A2.za/p-1.za to Baa1.za/P-2.za. All other ratings, with the exception of the short-term No Prime ratings, have also been placed under further review.

Moody’s prides itself as a leading provider of credit ratings, research, and risk analysis where their commitment and expertise contributes to transparent and integrated financial markets.

According to Moody’s, there were two reasons for the downgrade:

1. Their view of a lower likelihood of systemic support from the South African authorities following the recent decision of the South African Reserve Bank (SARB) to include a bail-in of senior unsecured bondholders and wholesale depositors as part of the restructuring plan for African Bank.

2. The lowering of the bank’s baseline credit assessment due to there heightened concerns regarding the risk inherent in Capitec Bank’s consumer lending focus.

Moody’s further stated that Capitec also faces “weaker economic growth, reduced consumer affordability, and high consumer indebtedness that are leading to higher credit costs”.

Capitec was informed of the decision, following a short telephone review of 30-minutes. In response to the downgrade and review, Capitec expressed its frustration stating that it was “extremely dissatisfied with the extent of the review and its conclusion”.

Capitec stated the reasons for its dissatisfactions are:

1. Moody’s had already confirmed the bank’s ratings at the higher level as recently as 12 May 2014.

2. Capitec felt that the downgrade by Moody’s is a reaction to the situation pertaining to African Bank, which is not applicable to Capitec.

3. Despite Capitec’s assurances that their performance was according to plan, the bank felt that Moody’s did not take this into account when assessing them. Moody’s was further invited to review additional information, provided by Capitec, but had chosen to decline the opportunity.

4. Capitec’s financial results for the 6 months to 31 August 2014 will be published on SENS on Monday 29 September 2014. In addition, Capitec has chosen to also provide a trading update on the results on or before 10 September 2014, irrespective of whether required in terms of the JSE listings requirements.

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