Capitec Bank Holdings Ltd., a provider of unsecured credit to low earners in South Africa, pared its drop this week after a government suggestion that interest rates on loans be capped spurred the biggest three-day slump in 12 years.
Capitec rose 1.9 percent to 433 rand as of 2:13 p.m. in Johannesburg trading, reducing the week’s decline to 10 percent from 13 percent earlier. The stock price gives the bank, the smallest lender on the city’s stock exchange, a market value of 50.1 billion rand ($4 billion).
In a notice published in the Government Gazette, the Department of Trade and Industry proposed cutting the maximum interest rate on unsecured credit to 24.78 percent from 32.65 percent. “Research studies and statistics show that South Africa has a worrying high level of over-indebtedness,” the department said on July 3. “The DTI is currently scheduling sessions with affected stakeholders as part of the consultative process during the month of July.”
Rival African Bank Investments Ltd. collapsed last year after bad debts rose and funding dried up, leaving Capitec as the largest surviving lender of loans not backed by assets. While Capitec has increased market share and earnings since then, lower interest rates and fees on consumer loans could curb profit from lending.
Capitec’s stock has been affected by “reports of government capping the interest rate they can charge clients for unsecured loans,” said Simon Brown, chief executive officer of JustOneLap, an investment and trading website. Such a move would hurt earnings, but not as much as some investors think, he said. The “market seems to be spooked,” he said before Capitec stock reversed some of its losses.
Almost two-thirds of the analysts who cover the stock have a sell rating on Capitec. UBS Group AG’s Johannesburg-based bank analyst, Stephan Potgieter, cut his target for the lender’s share price Tuesday. Capitec has advanced 90 percent in the past 12 months, compared with a 16 percent gain in the benchmark banks index.
“Capitec almost gave you a 300 percent return and got grossly overvalued,” Matthew Norwood-Young at Anchor Capital said by phone. “We cut our Capitec position completely a couple of months ago, maybe a little bit too early, but as it turns out, we were probably right on it. It got unreasonably highly valued.”