CAPITEC has bought back about R6.1m of its preference shares in a series of transactions during the past two months in compliance with new capital adequacy rules, the bank announced on Wednesday.
Basel 3 reform measures required banks to start phasing out preference shares as a component of core capital from January 2013. This is being done in increments of 10 percentage points over 10 years.
This calls into question what will happen to the R18.2bn in preference shares listed on the JSE by domestic banks.
Basel 3 rules indicate all local banks will need to redeem their preference shares, but so far, Capitec has been the only one to launch a buyback programme.
Capitec said only 60% of the original balance of noncumulative, nonredeemable (NCNR) preference shares counted towards its capital adequacy ratio on January 1, and 1.4% of tier 1 capital following the buybacks and in line with Basel 3 requirements for this year. The bank, led by CEO Gerrie Fourie, has been steadily buying back its preference shares since 2014.
Capitec chief financial officer Andre du Plessis said these preference shares did not “count as capital anymore.
“We buy back that 10% portion because it is more expensive than normal funding,” he said.
Preference shareholders are paid fixed dividends, and are paid before ordinary shareholders.
“Our preference shares constituted a very small percentage of capital — only R256m in 2013,” said Mr Du Plessis. “We may replace it at a later stage with Basel 3-compliant preference shares if the need arises.”
FirstRand spokeswoman Sam Moss said the group had not yet decided what to do with its preference shares, as proposed resolutions were unclear and it was awaiting further guidance.
“We are fully Basel 3-compliant on the recognition of preference shares as a contribution to tier 1 capital,” she said.
Ms Moss said FirstRand included R3.1bn of its R4.5bn preference capital in core capital at its June 2015 year-end, which was compliant with Basel 3’s 70% requirement for last year.
“The amount of NCNR preference shares included as qualifying capital will decrease to R2.7bn in 2016,” she said.
Nedbank shareholders approved a special resolution to give directors authority to repurchase shares at its annual general meeting last year, although the bank did not say whether this would cover preference shares.
Standard Bank — with preference shares worth R5.5bn — asked shareholders to grant directors the ability to buy its preference shares, limited to a maximum of 10% of the issued preference share capital in any one financial year.
Nedbank, Standard Bank and Barclays Africa did not respond to requests for comment.