VICEROY RESEARCH REPORT ON CAPITEC - ADDRESSING THE MAIN ISSUES RAISED IN THE REPORT

We refer to the earlier announcement on SENS today advising shareholders of concerns about the integrity of a report by Viceroy Research on Capitec and advising shareholders that management will review the report in detail and will respond to same before the end of today.

We are studying the report systematically and are still seeking clarity on some of the allegations. It is important to note that the report is flawed with inaccurate statements.

We respond as follows to the main allegations raised in the report:

1. Allegation that Capitec fabricates new loans and  collections, or refinances up to R3b in principal per  year by issuing new loans to defaulting clients

With reference to the reconciliation of the loan book, we can confirm that the estimate in the Viceroy report does not accurately calculate client repayments. They use a figure net of fees on loan accounts based on assumptions regarding the amortisation and capital repayment profile of the loan book. Their estimate of capital repayments of R16.7 billion underestimates actual loan receipts net of fees of R18.6 billion (receipts less fees) by approximately R1.9 billion.

They also reduce write-offs by an estimate of the component of write-offs that originate from new sales in subsequent years. There is a logic flaw that loan sales should be reduced accordingly. Furthermore, the default rates that they calculate does not consider the fact that written off balances include fees and should be compared against the sum of actual receipts plus write-offs.

2. Allegation of loans granted to delinquent customers to repay existing loans

What the Viceroy report is referring to is the court cases of 3 particular clients. They make no mention of Capitec's comprehensive responses in each of these cases which addresses each of the allegations contained in Viceroy's report. Our comprehensive responses are public documents and are available at court or from our legal department. Whenever we grant a loan, we do a comprehensive credit assessment based on the BAS principles (behaviour, affordability and source).

3. Allegation of over-statement of Capitec's loan book

Our impairment on loans are based on the probability of default. Loans are written off at the earliest of when they are in arrears for 90 days or more, or legal hand-over occurs. As at 31 August 2017, our doubtful debt provision covers loan balances in arrears by 237% and 152% when including arrears loan balances rescheduled within the last 6 months. Any competitor analyses requires a further breakdown of their loan granting, pricing, write-off and provisioning policies to compare our approach and position on a like for like basis.

4. Assumption that court cases may result in a class action

The proposition of a class action is speculation of the highest nature and premature. The matter must still be heard and Capitec believes it has solid defences to the allegations.

Capitec's explanations in its answering papers in the court cases are not taken into account. The monthly loans were granted under an over-arching multi-loan agreement, concluded at the outset.

Before concluding this agreement, Capitec concluded its standard comprehensive credit assessment. This consisted of documentary and other information provided by the customer (including bank statements, payslips and answers to questions posed by Capitec), as well as information sourced externally from credit bureaux.

Before each withdrawal under the over-arching multi-loan agreement, Capitec performed supplementary credit assessments. Capitec supplemented and updated the results of the underlying initial assessments, and its purpose was to check whether the customer still qualified for the proposed credit.

The process consisted of the following:

-  Customers asked to confirm that, ‘since you signed  your last multi-loan agreement, your income is the  same or more' and ‘since you signed your last  multi-loan agreement, your expenses are the same or  less.'

 -  Capitec making a credit bureau enquiry to enquire  whether the customer had any disqualifying legal  statutes (insolvency, administration, etc)

 -  Capitec making a credit bureau enquiry to determine  the sum total of the customer's current external  obligations, i.e. whether in the period since the  conclusion of the over-arching multi-loan  agreement, he has taken up fresh debt from entities  other than Capitec or settled existing debts with  such entities (as far as credit from Capitec itself  was concerned, this was checked and taken into  account directly)

5. Incorrect correlation between our credit facility and  discontinued multi-loan facility

The credit facility operates the same way as a credit card except that the Capitec credit facility terminates after 9 months. If the client applies for a new Capitec credit facility we do a new comprehensive credit assessment to see if the client qualifies for a new Capitec credit facility.

The initiation fee is only triggered once the client uses the facility up to a maximum fee agreed with the client, that is within the NCA.

Monthly fee - this fee is raised as allowed in the applicable regulations of the NCA. There is a difference between availability and use of the facility and interest is charged as contracted with the client and the full amount used, including interest and fees, is repayable on a monthly basis.

6. Capitec Bank's operations are significantly different  to that of African Bank

Capitec Bank is fully fledged retail bank and has different sources of income, not only credit. It's transactional business continues to contribute materially to its earnings as reported in our 1H 2018 results.

Capitec Bank has a significant retail deposit book, unlike African Bank. The result of this is that Capitec has a low reliance on wholesale funding.

Capitec Bank has a far more conservative approach to providing credit than African Bank. The provisioning of Capitec Bank is market-leading and significantly more conservative to that specifically of African Bank, as well as other unsecured loan books.

7. Opinions of former employees

Employees who are no longer employed by an organisation can make claims that are false. It is patently untrue that Capitec has fired any employees ‘for not deceiving borrowers'. Amongst the many inaccuracies in the report another exists where it is claimed that our branch managers earn an average of R13 219 where the actual average is R22 000 per month.

We are proud of the journey that we have placed our employees on with the result that many employees are promoted within the organisation.

We are concerned about the way in which Viceroy Researchconduct their business and our attorneys have registered a formal complaint with the Financial Services Board.

30 January 2018

Stellenbosch

Sponsor

PSG Capital

Issued by Capitec through the JSE SENS Service, 30 January 2018