Capitec Bank shares fall the most after downgrade


Capitec Bank Holdings Ltd. (CPI), which had its credit rating downgraded by Moody’s Investors Service after the collapse of rival African Bank Investments Ltd. (ABL), dropped to the lowest in four months in Johannesburg.

Capitec shares fell 4.6% to R206 - the lowest on a closing basis since April 11 and the biggest decliner among the South African banks as of 9:19a.m. The stock has declined about 2% this year.

On 16 August, the South African Reserve Bank said it disagreed with the Moody decision to cut Capitec’s deposit rating two levels to Ba2 from Baa3, with the potential for further downgrades.

“We do not agree with the rationale given in taking this step,” the Reserve bank said statement on its website.

“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 risks of Capitec’s consumer-lending focus and lower likelihood of support from South African authorities to protect creditors after African Bank’s rescue were the main reasons for the downgrade, according to Moody’s.

Abil, which wasn’t a deposit-taking lender like Capitec, was rescued by the central bank on 10 August after mounting losses at its furniture unit and the need for at least R8.5 billion (US$802 million) of new capital caused its share price to plummet more than 95%.

Capitec has never owned a furniture retailer and did not need to raise debt or equity in capital markets in the past year.

Capitec’s bad debt coverage ratio was 167 percent in February, the central bank said, while its capital adequacy at 40 percent “is well above the regulatory requirement.”

“It has a large cash holding and two thirds of funding comes from retail deposits,” the central bank said, adding that Capitec’s monthly financial data “indicate the continued good growth that the bank is experiencing.”

Capitec is due to give a trading update on 10 September.

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