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Downgrade of Capitec hits shares

August 19, 2014

Shares of Capitec Bank sank |6 percent in intraday trade yesterday after a Moody's ratings downgrade cited concerns about the bank's exposure to risky consumer lending.

The ratings agency cut Capitec's financial strength rating to "D" from "D+" late on Friday and downgraded the bank's bank deposit rating by two notches. It also put Capitec on review for further downgrades.

The cuts come after the Reserve Bank launched a R17 billion bailout of unsecured lender African Bank Investments (Abil) this month.

Moody's cited "heightened concerns regarding the inherent risks of Capitec's consumer-lending focus", adding that challenges in the unsecured market could weigh on the bank's financial performance.

The Reserve Bank said at the weekend it disagreed with the rationale for the cuts, saying Capitec did not follow the same business model as Abil.

On the JSE yesterday, Capitec shares ended 2.69 percent weaker than on Friday at R210.20, but off the session's low of R203.04. - Reuters

Cape Argus

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Source: Cape Argus (South Africa)

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