Capitec's outlook changed to positive from stable

Moody’s Investors Service has changed to positive from stable the outlook for the long-term national-scale issuer rating assigned to Capitec Bank.

Moody’s noted that the change in the outlook to positive reflects Capitec’s ongoing success in growing its franchise, diversifying its business base and maintaining good financial fundamentals, while successfully navigating through the financial crisis and macroeconomic slowdown.

Capitec had increased its client base to 2,8-million in February 2011 from one million in February 2007 and over the same period has successfully converted from essentially a micro-finance institution to a retail bank offering affordable banking.

“Capitec’s profitability and capital levels remain robust, with bottom line profits for the financial year ending February 2011 amounting to 6% of risk-weighted assets and its equity-to-assets ratio standing at 22%. It has also successfully built up its retail deposit base, which currently contributes around 60% of total funding.

“Moody’s also notes that loan quality appears well controlled. Impaired loans—defined as loans overdue by more than one day—represent 5,7% of gross loans and the bank maintains conservative accounting policies whereby loans with three missed instalments are fully provisioned and written-off,” the rating agency said.

“Capitec’s ratings also reflect the risks relating to (i) its strong balance-sheet growth—60% CAGR for 2006-2011—which will test its credit, capital and liquidity/funding management capabilities; (ii) the bank’s narrow market focus; (iii) high [though reducing] concentrations in its funding base; (iv) the lengthening maturity profile of its loan book, that reduced its flexibility to make adjustments when borrower behaviour changes; and (v) the high systemic credit risk inherent in the demographic credit characteristics of its client base,” Moody’s added.

The rating agency said that an upgrade could follow if Capitec sustains its track record of (i) maintaining sound financial fundamentals, which would also demonstrate its ability to successfully manage both the balance sheet growth and credit risks; (ii) consolidating and potentially further growing its market share; and (iii) further broadening and diversifying both its funding base and revenue sources—primarily its transactional banking fee income.—I-Net Bridge

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