The South African Reserve Bank (SARB) said on Tuesday that Capitec is solvent, well capitalised and has adequate liquidity.

Responding to a damning research report from Viceroy Group into Capitec, the SARB told Fin24 in an emailed response to questions that the bank meets all prudential requirements.

The SARB noted the 33-page report issued on Tuesday by the trio of short sellers and researchers of US-based Viceroy.

"As part of our mandate, we monitor the safety and soundness of all banks, including Capitec Bank. According to all the information available, Capitec is solvent, well capitalised and has adequate liquidity. The bank meets all prudential requirements," said the SARB.

Viceroy Research in its report called on the SARB to immediately place Capitec under curatorship.

Based on South African household economic indicators and other macro factors, Viceroy believes the projected appetite of the market for microfinance is drastically overestimated.

Viceroy believes loopholes are being utilised to sustain unaffordable borrowing. This includes consolidating previous loans, restructuring or consolidation fees, initiation fees and service fees which, in the research group's view, all hide "the true reality of a business struggling in a sector where historically, businesses have collapsed".

"In the unsecured lending sector, there appears to be only one company unaffected: Capitec... We implore the appropriate authorities to place Capitec under custodianship before further liquidity issues arise," the Viceroy report stated.

"Recent volatility in the mining sector, the introduction of the new mining charter and a massive spike in unsecured credit defaults evidenced in the most recent National Credit Regulator’s report of 2017 all raise alarms that Capitec is playing a very dangerous game."

In the 33-page report released on Tuesday, Viceroy claimed that, based on its research and due diligence, it believed Capitec is "a loan shark with massively understated defaults masquerading as a community microfinance provider".

This is the same US-based group which exposed "accounting irregularities" at embattled global retailer Steinhoff.

Viceroy stated that "discussions" with - among others - former Capitec employees, former customers and "individuals familiar with the business" suggest that Capitec "must take significant impairments to its loans which will likely result in a net-liability position".

Viceroy said it believes Capitec’s "concealed problems" largely resemble those seen at African Bank Investments prior to its collapse in 2014. The SARB placed African Bank under curatorship at the time.

"We believe Capitec will meet the same outcome," claimed Viceroy.

The report claimed that South Africa is in the grip of a household debt crisis exacerbated by easy access to microfinance.

"By 2012 as little as 6% of the total microcredit volume advanced was being used for conventional business purposes," stated the report.

"Not only is Capitec’s market finding it harder to pay their existing loans on time, but they may not be able or willing to incur further loans in the future."

Viceroy claimed that "upon accurate accounting of Capitec’s loan book and reserving for potential litigation, Capitec’s own financial health seems to teeter on insolvency".

The research group is of the view that SARB and financial regulators in SA "cannot stand by silently in the face of these abuses".

Capitec responds

Capitec said in a note to shareholders that it received the research report at 10:00 on Tuesday.

The lender advised shareholders that it had not been approached by Viceroy for insight into its business and "none of their allegations had been discussed, tested or verified with management".

Capitec 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".

By early afternoon trade the Capitec share price was down 18.98% at R831.