January 30, 2018 / 11:12 AM / in 21 days

REFILE-UPDATE 2-South Africa's Capitec falls 25 pct after report by Viceroy Research

(Refiles to remove extraneous words in paragraph 11)

* Viceroy Research says Capitec overstates assets, income

* Company defends its communications policy

* Central bank says Capitec “solvent, well capitalised”

By Tiisetso Motsoeneng and Nqobile Dludla

JOHANNESBURG, Jan 30 (Reuters) - Shares in Capitec Holdings dropped as much as 25 percent after U.S. firm Viceroy Research said the South African lender overstates its financial assets and income, claims which the bank rejected.

Viceroy Research shot to prominence in South Africa in December when it published a report questioning the finances at Steinhoff, owner of more than 40 retail brands globally. Steinhoff has admitted “accounting irregularities”, triggering an 85 percent share slide.

“Based on our research and due diligence, we believe that Capitec is a loan shark with massively understated defaults masquerading as a community microfinance provider,” Viceroy Research said in a report.

“We believe that the South African Reserve Bank & Minister of Finance should immediately place Capitec into curatorship.”

Capitec defended its business in a statement to the Johannesburg Stock Exchange on Tuesday.

“We believe our corporate governance is strong and our communications and disclosures are, and always have been transparent, clear and to the point,” the company said.

“On the face of it, the report is filled with factual errors, material omissions in respect of legal proceedings against Capitec and opinions that are not supported by accurate information,” it added.

Capitec said it had received a copy of the report only at 10 a.m. (0800 GMT) on Tuesday and that Viceroy had not discussed any of its claims with the company.

South Africa’s central bank said Capitec was “solvent, well capitalised and has adequate liquidity” in response to Viceroy Research’s report.

“The South African Reserve Bank notes a report by a U.S. based fund manager. As part of our mandate, we monitor the safety and soundness of all banks, including Capitec Bank ... The bank meets all prudential requirements,” the South African Reserve Bank said in a statement.

Founded in 2001, Capitec has grown rapidly both operationally and in the stock market thanks to its focus on vast, largely untapped low income earners who use its branches to deposit their wages and take out unsecured loans.

Viceroy, which did not disclose if it would profit from the Capitec stock price fall, said the company overstates its loan book by as much 3 billion rand a year by issuing new loans to defaulting clients.

Capitec would need to write off 11 billion rand ($925 million) of its loan book to accurately represent the delinquencies and risks in its portfolio, Viceroy added.

By 1110 GMT, Capitec stock had dropped 14 percent to 814 rand, lagging far behind a 1.8 percent drop in the Johannesburg blue-chip Top-40 index.

“The market fears Viceroy because they came out with interesting information on Steinhoff, they are yet to be proven but certainly it helped push the share price down,” said Cratos Capital equities trader Greg Davies.

In September last year, Capitec Bank reported a 17 percent increase in half-year earnings on steady client number growth. ($1 = 11.8966 rand) (Additional reporting by Tanisha Heiberg and Ed Stoddard; Editing by James Macharia)

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