JOHANNESBURG - The South African financial market was in turmoil this past week after the publication of an unverified research report on Capitec Bank.
In this report the short-selling research house Viceroy Research alleged that Capitec has an unsustainable business model and that it should be placed under curatorship by the South African regulatory authorities.
The company engages in research and financial market trading, contrary to reputable fund managers, where research and trading are kept completely separate.
Since 2001, Capitec has been a game-changer in the South African market by championing affordable and simple banking services and allowing millions of previously unbanked South Africans into the formal banking sector.
Banks are built on public confidence, which is brittle and easily destroyed. Once confidence is lost, large deposit withdrawals, known as a “run on the bank”, will cause temporary liquidity shortages. Confidence should therefore be protected at all times to prevent a banking crisis.
File image: IOL
Viceroy issued a report about Capitec that questioned Capitec’s conduct and financials, and suggested that it should be placed in curatorship. Once curatorship is mooted, confidence in a bank dissipates quickly. In its conduct, Viceroy was therefore highly irresponsible.
Viceroy should be cognisant that banks in South Africa are well supervised and regulated. If it had real concerns, it should have approached the central bank, as the regulatory authority, to raise any concerns about Capitec and avoid upsetting the domestic financial market. However, this approach would not have served Viceroy’s hidden agenda.
Capitec is also subject to supervision by other regulators, such as the National Credit Regulator and the Johannesburg Stock Exchange. Again Viceroy elected not to engage these regulators about its concerns.
It published its report for maximum impact in service of its own interests. This is evident from the fact that Viceroy engaged in short selling of Capitec shares before issuing its report, thus profiting from upsetting the domestic financial market and the decline in Capitec’s share price. Viceroy therefore only had its own profit motives in mind.
Viceroy acted contrary to the national interest in publishing a report, as it had only its own selfish profit objectives at heart. Viceroy has total disregard for the well-being of the South African banking sector and wider economy.
If Viceroy’s conduct is not illegal, it is at least highly unethical. We call on the South African regulatory authorities to engage their counterparts in the US to determine whether any type of action can be taken against Viceroy.
The South African regulatory authorities should be complimented for the way in which they responded to the Viceroy report and steadied the market. This action contributed to averting a systemic banking crisis in South Africa and bears testament to the strength of our regulatory framework.
Capitec must also be complimented on its handling of the emerging crisis and averting it. Capitec communicated quickly and very effectively with the media, analysts, regulators and clients throughout the crisis to address all possible concerns.
The management conduct of Capitec in this instance not only serves as an example of effective communication during a period of crisis, it also underlines the integrity of the bank’s management team.
Jannie Rossouw is head of the School of Economic and Business Sciences at the University of the Witwatersrand.
The views expressed in this article are not necessarily those of the Independent Group.