Tag: bank

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.

Gupta bank exits SA

With the state-capture inquiry about to kick off, the Bank of Baroda announced on Monday it was shutting down its South African branches.

The instruction is said to have come from the bank’s headquarters in India.

The bank, which provided banking services to the Gupta family when other banks would not, said its parent company was “rationalising” branches in international markets.

There was speculation at the weekend that it would exit SA.

Baroda said it would stop taking new deposits from March and cease operations altogether at the end of March.

The South African Reserve Bank said the registrar of banks was in talks with Baroda to ensure its orderly withdrawal to protect depositors. The bank had R2.6bn in deposits at the end of December, according to regulatory filings.

Manoj Kumar Jha, the bank’s South African acting CEO, declined to comment.

The latest developments come after the bank became ensnared in state-capture allegations through its association with the Gupta family, its companies and associates.

Baroda faced the possibility of closure arising from a directive the Bank issued after it fined Baroda R10m for breaching sections of the Financial Intelligence Centre Act.

Baroda was named in former public protector Thuli Madonsela’s 2016 report on state capture, which directed President Jacob Zuma to appoint a commission of inquiry to investigate whether any official or organ of state had acted unlawfully, improperly or corruptly by giving financing facilities to companies linked to the Gupta family. This included a R659.5m prepayment that Eskom made to Tegeta Exploration & Resources to acquire the Optimum mine that supplied coal to Eskom.

Baroda is to be investigated for its role in facilitating the transaction and its handling of funds belonging to Optimum’s mine-rehabilitation fund.

After a lengthy legal battle and a ruling by the High Court in Pretoria, Zuma finally appointed Deputy Chief Justice Raymond Zondo in January to head the state-capture inquiry.

The National Prosecuting Authority’s asset-forfeiture unit froze more than R110m in deposits held at Baroda, which it said were proceeds of crime related to the controversial Vrede dairy-farm project in the Free State — meant to empower poor community members.

According to the asset-forfeiture unit, the R110m was part of R220.2m paid by the Free State agriculture department to Estina, a company associated with Atul Gupta, for the project.

Very little of this money was used for its intended purpose. Some funds found their way to Atul Gupta’s niece Vega’s blockbuster wedding at Sun City, while other funds went to vehicle dealers and other entities belonging to the Gupta family.

Attempts to reach Eugene Nel, the curator who was appointed by the court on behalf of the asset-forfeiture unit, were unsuccessful.

By Moyagabo Maake for Business Live

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

Africa’s largest lender by market value plans to take on Britain’s biggest banks with the takeover of Aldermore Group as growth in its home market stutters.

FirstRand said on Monday it agreed to buy all of Aldermore after winning the backing of the U.K. lender’s board and its largest shareholder. The offer, which values Aldermore at about £1.1bn, will help the Johannesburg-based company diversify away from South Africa, which accounts for about 96% of earnings and where economic growth is slowing to near levels last seen in the 2009 recession.

“There’s plenty of opportunity for a challenger bank to go and keep giving it to the big banks,” Aldermore Chief Executive Officer Phillip Monks said by phone. The company hasn’t received competing offers and will now engage other shareholders after receiving irrevocable undertakings from funds advised by AnaCap Financial Partners, he said. AnaCap holds more than 25% of its stock.

Fast-growing Aldermore is among a group of U.K. banks seeking to challenge the dominance of the nation’s four biggest lenders, which control as much as 80% of the market, by offering faster lending decisions and more personalised customer service. FirstRand is also facing increased competition from smaller banks and financial-technology start ups at home.

FirstRand will create a new division for its UK operations that will be headed by Monks and include both Aldermore and FirstRand’s auto-finance business MotoNovo, the CEO said. It will now “need to sit down” with MotoNovo and “think about the opportunities that we can work out together,” Monks said.

Premium justified

FirstRand is offering £3.13 a share for Aldermore, 22% more than Aldermore’s closing price on October 12. Aldermore rose 2.5% to £3.10 by 14:45 in London on Monday, extending gains since its March 2015 initial public offering to 61%. FirstRand climbed 1.3% to R53.09 for a market value of R298bn.

The premium is justified because “we can accelerate our strategy, the fact that we get access to a banking license with a very well-regarded deposit franchise, the fact that we can get access to a great management team with a track record of delivery,” and the size of the transaction relative to FirstRand’s market value, FirstRand Deputy CEO Alan Pullinger said by phone.

The deal won’t impact the outlook provided when FirstRand released full-year earnings in September, he said, when the lender said it expects return on equity, a measure of profit, to be in the upper end of its 18% to 22% target. “The guidance we’ve given to the market around earnings growth, return profile and dividends will remain intact.”

Surplus capital

The acquisition comes as FirstRand seeks to build offshore funding so it doesn’t need to rely on the South African government’s credit rating. The nation’s local-currency debt is at risk of being downgraded to junk by the end of the year because of political wrangling ahead of the ruling party’s conference to elect a successor to President Jacob Zuma.

“We can fund this entire transaction with existing cash resources,” Pullinger said. “We’ve been building up a lot of surplus capital. We continue to build up excess capital and we think we’ll continue to generate surplus capital post this transaction.”

The lender isn’t allowing concerns around Britain’s decision to leave the European Union to halt its expansion strategy, he said, given that it has become accustomed to operating nine subsidiaries in riskier sub-Saharan African markets. “All of those markets have also got some pretty heavy challenges and some scary political stuff going on,” he said. “We don’t for a moment minimize the concerns around Brexit, but it is a relative issue for us.”

The purchase may limit FirstRand’s ability to make large acquisitions in the rest of Africa, Patrice Rassou, the head of equities at Sanlam Investment Management in Cape Town, said by email. Combining Aldermore and MotoNovo would create a more sustainable business as the “two are complementary,” he said.

‘Glorious’ run

FirstRand needs approval from 75% of Aldermore’s shareholders for the deal to go through, FirstRand spokeswoman Sam Moss said in a text message.

“Aldermore’s pretty glorious two-and-half years as an independently listed company appears all but over,” Ian Gordon, the head of banks research at Investec Bank Plc in London, said in a note. “We assume completion on the agreed terms within four months. We continue to anticipate little likelihood of any counter-bid or ‘sweetener’ to the existing offer.”

Aldermore released an earnings update on Monday that showed an improvement in its tangible net asset value to £1.76 from £1.525 at the end of 2016. That values FirstRand’s offer at 1.78 times, “which we see as reasonable, but hardly over-generous”, Investec’s Gordon said.

By Donal Griffin and Renee Bonorchis for Fin24

Eskom to get R20bn boost from Chinese bank

Eskom will sign a $1.5bn (R19.78bn) loan agreement with China Development Bank on Thursday, as the state-owned utility powers ahead with its funding requirements for 2017.

Last week, new acting Eskom CEO Johnny Dladla revealed that Eskom had secured 77% of its funding requirements for the 2017/18 financial year.

He said that for the 2016/17 financial year, Eskom increased its borrowings by over R60bn.

“We remain resolute that we will fully execute the required funding for the year, albeit under challenging market conditions,” Dladla said in a statement last week.

“Our liquidity levels remain healthy and Eskom’s financial profile continues to improve and stabilise.

“Backed by the availability of the government guarantees and the stable financial profile, we do not foresee significant impediments in the execution of the remainder of the FY17/18 funding requirement,” said Dladla.

Eskom is expected to use R43.6bn of its guarantee in 2016/17 and R22bn annually over the medium term, Treasury said in its 2017 Budget Review. Eskom has a R350bn guarantee for the 2016/17 year, with an exposure of R218.2bn.

“Gross foreign borrowings are expected to account for the majority of total funding over the medium term, largely as a result of Eskom’s efforts to obtain more developmental funding from multilateral lenders,” Treasury said in the Budget Review.

The borrowings come despite the power utility being downgraded by rating agencies this year, after Moody’s, S&P and Fitch cut South Africa’s sovereign credit ratings.

By Matthew le Cordeur for News24

 

Those of us who don’t rent bank safety deposit boxes for our valuables probably imagine the set-up to involve fingerprint-accessed vault-like doors and a cobweb of alarmed beams, as in the movies.

It wasn’t quite like that, said one of the victims of the December 18 First National Bank Randburg branch heist in which 360 boxes were stolen.

“Zai” of Randburg, who did not want to be named, happened to be at the bank yesterday when most of the boxes were returned to the branch by what appeared to be a private security company.

Police found the empty boxes dumped near FNB Stadium in Soweto two days after the heist.

All the valuables, including watches, Krugerrands, and jewellery passed down generations were gone. Only documents such as title deeds were left behind.

Zai’s family had rented the box since about 2004, she said, and at the time of the theft were renting it at R120 a month.

“Ironically, it was quite a big deal for us to access our boxes,” said Zai, who last did so in October.

“You had to make an appointment at least 24 hours in advance.

“Someone would meet you and take you into a room, and lock the door behind you. I’d have to produce my ID, then he’d go into another room, a vault, where the boxes were kept, lock that door behind him and then pass my box to me through a slot in the wall.

“I never saw any of the other boxes. I opened my box with two keys, in my possession, and then I’d be left alone to do what I needed to do, and then I’d phone to say that I was finished, so they could take the box back into the vault.

“It seemed very safe and professional,” she said.

In early December Zai’s husband asked her to collect their six expensive watches from the box to have them serviced.

“But I was too busy and now they are all gone,” she said.

FNB’s safety deposit contract states the bank will not be legally responsible “under any circumstances for any loss or damage that may occur to the contents” and officials have said they had no way of knowing what was in the stolen boxes and urged clients to insure the contents of the boxes.

By Wendy Knowler for Timeslive

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