By Hanna Ziady for Business Live

Capitec, the lender that indelibly disrupted SA’s banking sector, entered the insurance market with the launch of Capitec Insure on Monday.

It will dip its toes in the water with a funeral plan underwritten by Sanlam-owned Centriq Life Insurance Company.

“We know what our banking clients are paying to other providers and we are coming in well below the competition with more cover,” Francois Viviers, executive of marketing and communications at Capitec, told Business Day on Monday.

The vast majority of the bank’s clients had funeral policies with other providers. It would target these customers initially before launching marketing campaigns, Viviers said.

Capitec, which obtained its banking licence in 2001, now boasts nearly 10-million customers. About 46% of these are primary banking clients, who not only have loans with the bank but make regular deposits into their Capitec accounts, mainly salaries.

It now has 289,000 active credit cards in issue, launching that product at the beginning of 2017 to target wealthier customers. Its credit card product had a book value of R2bn at the end of February — about 4.2% of Capitec’s total loan book.

The funeral insurance market in SA is reportedly worth more than $500m in annual premiums. The Financial Services Conduct Authority could not confirm this figure at the time of publication.

Funeral insurance was a “good opportunity” for Capitec, as it had been very lucrative for large life insurers such as MMI and Sanlam, said Renier de Bruyn, investment analyst at Sanlam Private Wealth.

“Margins are high, which means Capitec can charge less and still be profitable,” he said.

There were 15-million funeral insurance policies in circulation covering 19-million adults, Viviers said.

“Based on our research, we estimate the average policy in the market to cover a main life, spouse, two children and one extended family member costs between R175 and R295.

“Capitec provides the equivalent cover at approximately R140 in branch and R124 on our banking app,” he said.

Policies start from R25 a month, through the Capitec app and R40 a month when applying in branch.

Funeral cover ranges from R10,000 to R100,000.

The product would be accessible via the Capitec banking app, where customers could change their cover amounts depending on monthly affordability, Viviers said.

The funeral plan featured cover for up to 21 dependants, including the policyholder.

Other features include a doubling of the funeral payout if a life assured died in an accident and a six-month premium waiver if the policyholder died for the remaining life assureds.

In addition, there was a voluntary policy pause for up to six months, with no premiums payable and no cover.

Capitec hoped to launch other insurance products in the long term, Viviers said.

Also on Monday, international short-selling outfit Viceroy Research published a letter containing questions for Capitec’s audit committee.

These relate to alleged changes in Capitec’s provisioning policy and the nature of internal consolidation.

A scathing Viceroy report in February torpedoed the share price and prompted a back-and-forth debate between Capitec and Viceroy.

Capitec CEO Gerrie Fourie said at the time that the Viceroy report was “riddled with inaccuracies”.

The share price did not react to the Viceroy letter on Monday.

By Sipho Masondo for City Press

Fears are mounting that up to 15 municipalities across the country could collapse because they are not likely to recover their R1.5bn investments at VBS Mutual Bank.

Their exposure to VBS was “too large compared to their operating revenue”, according to a Treasury document sent to the affected municipalities last week.

The SA Reserve Bank (Sarb) placed VBS under administration in March, following a liquidity crisis. VBS’s main source of cash was illegal short-term municipal deposits which it used to fund long-term loans to clients.

Senior Treasury officials fear that some of the municipalities – based in Limpopo, North West, Gauteng and Mpumalanga – could collapse. This would force their provincial governments to place them under administration.

The Treasury report reveals that the 15 councils are unlikely to recover their R1.5bn total investment.

“The payout to municipalities is highly uncertain,” the document reads. Its authors point out that Sarb is likely to prioritise retail depositors and not bail municipalities out.

“In line with the mandate of protecting the most vulnerable, the restructuring will focus on the depositors. At this stage, the ordinary depositors will get back almost all their deposits,” reads the document.

Sarb has already approved a restructuring that would benefit rural retail depositors, funeral insurance collectives, stokvels “and other vulnerable groups”.

“There may be little left for municipalities, which deposited illegally. It is a general principle that no bailouts are provided to municipalities,” the Treasury document says.

A senior Treasury executive said there were concerns that because of their “reckless investments” at VBS, some of the municipalities may no longer be financially viable.

“Some of their finances are in tatters, and they may need to be placed under administration,” the executive said.

Salaries in jeopardy

The official cited the example of Giyani, which invested R158m of its R302m operating revenue in VBS.

“How does a municipality without half of its operating revenue survive?” the official said.

The newly established Lim 345 Municipality, in the Thohoyandou area, had invested R122m of its R344m operating revenue in VBS. Greater Tubatse in Sekhukhune had put R210m, or 38%, of its R548m operating revenue in the bank.

Another Treasury executive said this money was part of municipalities’ annual budgets and not extra money that the councils could function without.

“Unfortunately, they have lost all that money and it is only a matter of time before you hear that some of them are not able to pay salaries. I’ve heard that one of them nearly didn’t pay salaries in November last year,” he said.

An executive member of the SA Local Government Association said it was “almost a foregone conclusion that some of these municipalities will crash”.

“We are losing sleep over the issue. The money was strictly for operational issues, not reckless investments,” said the official.

Fictitious deposits, untraceable lending

The Treasury report reveals that about R900m is missing at VBS.

“This money appears to have disappeared due to fictitious deposits and untraced lending. There is evidence of large, unrecoverable loans to directors and related parties. There is some evidence that VBS paid a lawyer a ‘commission’ when municipalities deposited money with the bank. It is not, at this stage, evident if this commission was passed on to municipal managers.”

The report says the bank’s business model was “ill-fated and doomed to fail”.

“VBS made long-term loans, knowing that their primary funding was short-term in nature and lumpy. Hence the business model is almost certainly designed to generate liquidity problems when a few municipalities withdraw their funds to spend on budgeted programmes,” the report reads.

Law was broken

Treasury says VBS actively flouted the law by focusing on municipal deposits, which made up almost 75% of all its deposits. Despite being aware of the restrictions on accepting municipal deposits, the bank continued to accept more. This continued even after it started talking to Treasury about phasing out its past municipal deposits, in order to comply with the Municipal Finance Management Act.

The Mahikeng, Greater Tubatse, Ruth Segomotsi Mompati and Elias Motsoaledi municipalities appear to have been enticed by the high returns the bank promised and disregarded the act.

Curator’s ‘extortionate’ fees

Two VBS senior managers accused the bank’s curator, Anoosh Rooplal, employed by auditing firm SizweNtsalubaGobodo, of charging “exorbitant and extortionate” fees. He sent the bank a bill of R2.6m for three weeks of work.

Sarb appointed Rooplal when it placed VBS under administration in the middle of March.

Rooplal sent the bank his invoice on March 31. The bank paid three days later.

One of the managers said: “If you invoice R2.6m in three weeks, how much will you be paid every month? How much will Anoosh and SizweNtsalubaGobodo be paid by the time the bank is back on its feet? It all looks exorbitant and extortionate.”

Another manager lamented the fact that while depositors could not access their money, the curator was being paid handsomely.

“It simply just doesn’t make any sense to me,” the manager said.

The curator’s spokesperson, Louise Brugman, said Sarb had approved the remuneration and fee structure for the curatorship upfront.

She said that, as per normal governance practice, the curator was required to regularly update Sarb on fees, related activities and the bank’s financial position.

“As further irregularities have been uncovered within the bank, additional experts have been required to assist to restore the bank, all of which is reported and explained to Sarb,” she said.

By Siseko Njobeni for Business Report; by Carin Smith for Fin24

The Congress of South African Trade Unions yesterday urged the National Energy Regulator of South Africa (Nersa) to reject Eskom’s application to recoup R666,6-billion, saying such a move was unaffordable, unreasonable and unjustifiable.

If the Regulatory Clearing Account (RCA) application – which covers the 2014/15, 2015/16 and 2016/17 financial years – is approved, Eskom would claw back the billions of rand through higher tariffs.

According to various organisations, the R66bn could lead to a 30% increase in tariffs.

South African consumers have reached a price ceiling in terms of electricity tariff hikes, according to the Southern African Faith Communities’ Environment Institute (Safcei). Kim Kruvshaar, an independent sustainability auditor, represented Safcei at public hearings by the National Energy Regulator of South Africa (Nersa) in Cape Town on Tuesday.
“We don’t believe Eskom is an efficient electricity provider. Its business model is out of sync with global trends,” Kruvshaar told the Nersa panel.

Public hearings

The RCA is a backward-looking mechanism that seeks to reconcile what Nersa awarded Eskom on the basis of what was forecast in the Multi-Year Price Determination (MYPD) and what materialised, as reflected in the utility’s financial statements.

In a presentation at Nersa’s public hearings on the application in Cape Town yesterday, Cosatu said higher tariffs were not the solution to Eskom’s problems. It said higher tariffs affected key sectors such as mining, inflation and economic competitiveness. It said Eskom had failed to come clean on state capture and to take serious action against maladministration and corruption.

The trade union federation said Eskom should institute comprehensive forensic and criminal investigation “with dismissals, arrests, asset seizures and prosecutions”.

Speaking at the hearing, Eskom interim chief executive Phakamani Hadebe said Eskom’s sustainability depended on a sound regulatory environment that was aligned with existing Nersa rules and other legislative requirements.

“We therefore rely on Nersa to review our application in line with the MYPD3 methodology, which is a globally accepted regulatory principle that reconciles variances between the
projected and actual revenue and costs that Eskom incurred for certain elements. “It is also worth noting that we based our application on the decision already taken by Nersa on our first RCA application for 2013/14.

“We have spent the money in the implementation of our mandate of providing electricity to South Africans by raising debt as it was not included in the revenue decision and need to repay those loans accordingly in order to ensure credibility with our lenders.”

Hadebe said Eskom’s application only covered costs that were incurred efficiently and prudently.

Recovery

He said Eskom was on a path of recovery on governance. The Eskom board – appointed in January – was preoccupied with the power utility’s operational and financial stability. “Continued focus and effort will be placed in combating corruption and pursuing justice within the legal framework. We also welcome various investigative interventions that are under way to get to the bottom of recent acts of fraud and corruption, and we are in the process of claiming back money owing to Eskom, including money that was fraudulently paid to McKinsey and Trillian,” said Hadebe.

Agri Western Cape said electricity costs had risen significantly since 2008. The federation of farming organisations said Eskom’s RCA should be vetted by auditors.

Unpaid domain fees are allegedly the reason why the South African Post Office’s (SAPO’s) web site was recently down for an unknown number of days.

Upon navigating to www.postoffice.co.za, users were greeted with an error stating: “This site can’t be reached … www.postoffice.co.za took too long to respond.”

According to reports on MyBroadband, payment for an amount of R125.40, invoiced on 1 February 2018, had not been made by owners of the post office domain.

Calvin Browne, cofounder of DNS Africa and head of international registrar relations at Domain Name Services, explained the situation in detail to MyBroadband.

According to Browne, an invoice was sent and delivered to SAPO on 1 February. By 1 March, a follow-up email was sent and delivered. On 12 March, a final warning e-mail was delivered, and a week later the domain was suspended. The outstanding fees were paid on 20 March.

The lack of payment was not the only issue, however, and is reason for the three-day delay between payment on 20 March and the web site only coming online again on 23 March.

According to MyBroadband, there are “several errors with the ‘postoffice.co.za’ zone setup”. Browne says it is “quite remarkable that anything works at all” – all of which contributed to the extended downtime.

Via MyBroadband, Browne gave a detailed explanation of these problems, which included:

  • There are seven nameservers, instead of the listed five in the registration
  • One of the nameservers – waterbok.postoffice.co.za – is not valid
  • The “postoffice.co.za” domain is susceptible to DNS cache poisoning and is vulnerable to being hacked
  • One nameserver – gemsbok.postoffice.co.za – is not listed in the co.za zone
  • When the “gemsbok” nameserver was queried, “waterbok” had been replaced by “gemsbok” and “gemsbok.postoffice.co.za” was gone
  • The TTLs (Time To Live records) are different – on “gemsbok.postoffice.co.za” they are set to expire in one day, while “waterbok.postoffice.co.za” they are set to 10 minutes
  • When Browne tested the nameservers, they responded with “SERVFAIL”, which “basically means they know nothing about postoffice.co.za”
  • These misconfigurations  mean two of five registered nameservers do not even know about the domain, and cannot be trusted to serve the correct information

When taking all of this into consideration, it is no surprise that SAPO took so long to get its web site back up and running – and it belies problems on their other domains, such as Post Bank.

Original article by MyBroadband

Edcon’s flagship store, Edgars, has been struggling to find its place among modern South African consumers, who are enjoying shopping at international stores like H&M and Zara.

Earlier this month the company reported a quarterly sales decline. According to an article published by the Sunday Times, Edcon decided a few years ago to go with more fashionable expensive assortments and they forgot about their heartland customer, which is at the very centre of the business.

“If they are not selling the merchandise they have in their stores then they have to change their strategy, and Edcon appears to have been through some major changes,” Andrew Jennings, former president of Saks Fifth Avenue, GM of Harrods and MD of Woolworths, and author of Almost is Not Good Enough – How to Win or Lose in Retail, is quoted as saying.

Over the past decade, Edcon has struggled with leadership as its three CEOs have made some notable strategic blunders. The company has been in operation for 89 years. As of March 2017, Edgars had 1 343 stores including 187 stores in eight countries outside of South Africa.
Edcon has been selling off stores – the Legit store chains, with the exception of those operating in Botswana, were sold effective 29 January 2017 and the Edgars Shoe Gallery store chains closed during the 2017 financial year.

In addition, Edcon has closed 253 stores – but this has left the retailer with too many leases in malls and no brands to fill the empty space

According to The Sunday Times, the store has been trying to find a solution to this empty floor space and as such has introduced a coffee shop into its Eastgate Mall store called Made Café . This serves both to use up empty space and to act as a drawcard to the store, following the modern consumer trends.

The National Credit Regulator (NCR) will investigate Standard Bank’s new credit card fee, according to a report in the Sunday Times.

The bank has been charging a standalone monthly “card fee” of between R10 and R210 to customers who use its credit cards only, with the fee depending on the type of card the customer uses.

The card fee was implemented at the beginning of 2018 and is charged in addition to the monthly service fee of R40.

According to the NCR, the Credit Act has a closed list of charges a credit provider can levy on customers – and the card fee is not one of them.

The NCR said it would investigate Standard Bank’s card fee and take approporiate action if the fee is found to be illegal.

According to Standard Bank’s pricing guide for 2018, the card fees are as follows:

Gold, Blue, and Access cards – R10.00
Titanium standalone – R25.00
Platinum standalone – R40.00
World Citizen standalone – R210.00

The report follows SA Consumer Satisfaction Index results in 2017 showing that Standard Bank customers are the least satisfied.

Standard Bank did not respond to requests for comment sent by the Sunday Times.

Source: MyBroadband

We have been here before: glued to our screens on the promise that Jacob Zuma is about to lose his job. Time and time again, he survives, and we’re left to rue our premature excitement. SONA 2018 may have just changed all that.

President Jacob Zuma could well be on the cusp of a recall. When you think about all his previous scandals, then it becomes apparent this is an incredibly tight spot for the President.

Does no SONA mean no Zuma?
National Assembly Speaker Baleka Mbete stood on the steps of Parliament, and delivered a damaging announcement to Zuma’s bid for survival. Mbete revealed that the threat of disruptions led to her writing to the President asking him to postpone.

At the same time, Mbete said they were informed that President Zuma was already in the process of writing to her to request a postponement.

It seems today like the ANC are finally putting the final nail in the coffin of Count Zuma. Yes, he’s risen from the dead before – staying in a job against improbable odds – but now it seems his political career is six feet under. This judgement on SONA 2018 is something not even the Teflon one can recover from.

Will Jacob Zuma lose his job on Wednesday 7 February?

The ANC NEC cancelled a long-awaited and historic meeting that was to be held-today, in which the future of the President was to be discussed. Don’t be fooled by all the diplomatic language, here. They want Zuma out, and are pushing harder than ever before.

If Jacob Zuma had any long term future with as a leader, he needed to deliver SONA. It would have been a defiant statement of staying power, and a bruising PR defeat for Cyril Ramaphosa’s efforts to revitalise the ANC.

Will he resign?
Despite the very public lack of support from him in the government’s hierarchy, it is our view he still won’t go of his own accord. And the only way out from here will be a recall, which looks set to be confirmed this week.

In Mbete’s Cape Town Address, she effectively condemned JZ to the politcal wilderness. The Speaker seemingly suggested that SONA cannot happen whilst Zuma is the Head of State:

“The postponement will be no longer than one week. We need to consider the mood of the country, and only go ahead when we know we’ll have a very productive SONA.”

“We have been meeting with ANC stakeholders and participants since last Monday. We aren’t just looking at logistics, we’re listening to our political voices. We are continuing to interact with Cyril Ramaphosa on this, for when we talk about Parliament, we talk to this office.”

When will SONA 2018 take place?
Interestingly, Mbete said she’d expect to see SONA take place next week. So it would seem she feels Zuma hasn’t much, if any, time left. ANC Chief Whip Jackson Mthembu also stuck the knife in, saying that the party “welcomes the decision made in Parliament”. He wouldn’t be drawn on when Zuma would face recall, though.

If this is Zexit eve, then it looks like he’s going down fighting. The certain indignity of a recall may just be the most fitting end to a Presidency swamped with problems.

By Tom Head for The South African 

On Tuesday morning, a financial research group called Viceroy released a report looking into the business model and practices of South African lender Capitec. It is damning in the extreme, accusing Capitec of “predatory finance” and massively overstating its performance and value. Capitec will collapse, says Viceroy, unless it is placed under curatorship by the authorities. Here’s what you need to know so far.

What is Capitec?

It’s a South African micro-finance provider which does business mainly with low-income South African consumers. It has been garlanded with awards for its innovative practices and high share prices.

What is Viceroy?

Good question, because until a few months ago few people in South Africa had heard of them. Viceroy is a financial research outfit consisting of three people working between New York and Australia. Viceroy is a deliberately low-profile company with a WordPress website, on which it describes itself as “a group of individuals that see the world differently”.

Viceroy started releasing reports on big companies in 2016, but only attracted South African interest after publishing a report exposing Steinhoff a day after the company admitted accounting irregularities. Now Viceroy has gone in guns blazing for Capitec.

So they’re like a financial version of activist group Anonymous?

That might be pushing it, because there is speculation that Viceroy also shorts stocks on the basis of its information. There is definitely a financial motive to their research as well as an altruistic dimension. Earlier this month, they told Fin24 that they had made donations to South African charities after the Steinhoff exposure, and claimed: “Our ethos is protecting consumers, investors and integrity by making sure all the facts are known.”

What does Viceroy have to say about Capitec?

Nothing flattering. In a 33-page report released on Tuesday morning, Viceroy says that its analysis of Capitec’s reports, study of legal papers and interviews carried out with former Capitec clients and employees reveals a South African enterprise engaging in “predatory finance”.

Capitec is preying upon low-income South Africans, Viceroy suggests, by offering instantly accessible credit via ATMs to people. Customers can be charged interest rates of 155% on a single loan. Viceroy has also obtained affidavits from clients who say that when their first loans with Capitec became too big, Capitec granted them further loans – which clients could not afford – to repay the first loan.

In effect, Viceroy charges that Capitec is acting like a snazzier version of a backstreet loan shark.

Why would Capitec offer loans to people who can’t afford them?

That’s the question which cuts to the heart of the micro-finance industry in South Africa. In Capitec’s case, Viceroy claims that the lender took home more than 20% of its 2017 earnings in loan fees. Viceroy says that Capitec also concealed the extent of its unpaid loans by constantly issuing new loans to refinance the old ones.

Are Viceroy’s claims true?

That remains to be seen. Its Steinhoff report was “hailed as highly professional and accurate”, according to Moneyweb.

The South African Reserve Bank, however, told Fin24 on Tuesday morning that according to the information SARB has at its disposal, Capitec is “solvent, well capitalised and has adequate liquidity”.

What does Capitec have to say for itself?

Its sole public statement on the matter at time of writing had been via social media. Capitec tweeted on Tuesday morning that it had “taken note” of the report. “We are currently in the process of investigating the report in detail and will respond immediately,” it said.

In a hastily sent-off memo to shareholders, however, Capitec was conceding nothing. It described the Viceroy report as “filled with factual errors, material omissions in respect of legal proceedings against Capitec and opinions that are not supported by accurate information”.

By Rebecca Davis for The Daily Maverick

The rand eased in early trade on Tuesday, relinquishing some of the gains it notched up in a previous session on news that the ruling political party, the ANC was deciding whether to cut short president Jacob Zuma’s tenure as head of state.

According to a report by Reuters, the currency is expected to trade in the range of R12.00 to R12.25 on Wednesday, after it eased off its highs against the dollar during European trade on Monday.
The currency is tracking a wave of positive sentiment following the appointment of deputy president Cyril Ramaphosa, as ANC leader in December, while the ruling party’s top leadership has also decided that Zuma must leave office, with speculation about the timing.

Ramaphosa is expected to adopt more business-friendly policies, even though he enjoys the support of the communist party and the biggest labor union federation. His election as ANC leader helped boost the rand 10% last month.

At 09h55 on Tuesday, the rand softened against the dollar, but firmed against the pound and the euro:
• Dollar/Rand: R12.09 0.33%
• Pound/Rand: R16.90 -0.13%
• Euro/Rand: R14.83 -1.43%

A report by The Guardian late on Monday reiterated that plans are in place to oust Zuma within the next two weeks, despite comments from secretary general Ace Magashule that NEC had not yet made a decision on the future of the current president.

Investec Bank economist Annabel Bishop said in a note at the start of the week that the rand could strengthen to as much as R11 to the dollar, should the president be forced to step down.
Further strengthening would also cause fuel price cuts and place downward pressure on inflation, with the possibility of the rand moving towards R10 to the dollar should Ramaphosa continue to make reforms and promote growth, she said.

Bloomberg market analyst Robert Brand also remained positive on the currency, stating that it was possible for Ramaphosa to continue the rally by continuing to clamp down on corrupt state-owned enterprises such as Eskom, and possibly even move away from some of the ANC’s more populist ideas (such as land reform) so as to encourage continued foreign investment.

Source: BusinessTech

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