The bank which bailed out former President Jacob Zuma over Nkandla is in such trouble that not even the fire pool could douse the flames.
Reserve Bank Governor Lesetja Kganyago announced on Sunday that the struggling VBS Mutual Bank, one of the smaller local banks, had been placed in curatorship.
A letter which VBS chairman Thifhiwa Matodzi had sent to the Reserve Bank & Treasury on Friday has been circulating on social media. It suggests the bank failed to secure the support which it needed to continue with business as normal…because it was black-owned.
“In the end we were faced with a well organized and powerful system which does not tolerate growing black banks and black excellence. To me and many black Africans, this democracy is just a dream which only exists on paper,” he charged.
The recent crisis was apparently triggered, he suggested, by mixed signals from the regulatory authorities on whether VBS was permitted to do business with municipalities. It is not normally permitted for mutual banks to do so.
Kganyago rejected claims that the ethnicity of a bank’s owners might be relevant to any decisions of the regulators.
A Treasury instruction to return all municipal deposits, amounting to over R1bn, seemingly led to the current liquidity crisis. On the 16th of February, alarm bells were rung, as VBS was unable to meet its obligations.
The Governor voiced concern at the way VBS grew rapidly, on the basis of municipal deposits.
“It was highly risky for VBS to take sizeable municipal deposits that were short-term, and (to) lend them out long-term,” he said.
Protection of deposits up to R50 000 was announced by the Governor, and customers with loans were advised they needed to continue as normal with repayments. However, some larger depositors, including some municipalities, might find some of their cash at risk.
Said the Treasury in a statement on Sunday: “Any bank must ensure that at all stages, it takes deposits in line with our laws. Whilst sensitive to the need to prevent a bank from failing, the National Treasury cannot and will not do so by breaking any laws.
“To the extent that any bank is experiencing any prudential challenges, it is between the Reserve Bank and that bank to consider how best to ensure the bank is safe for all its depositors. The Board of any bank must at all times operate within the law, and must take full responsibility for its business model, and the risks that go with such a business model.
“Since late 2016, National Treasury has been working to try and find an orderly resolution to the problem of municipalities placing deposits in contravention of the (law).
“The matter of municipalities investing in mutual banks was also raised in a series of parliamentary questions during the course of 2016 and 2017. Over six months ago, in August 2017, the National Treasury issued a communication to selected municipalities drawing attention to legal requirements as part of its monitoring and compliance functions.
“Since then, no circular was issued to municipalities. Municipalities make their own decisions on banking and investment, as long as it is within the framework of the law.
“The National Treasury will engage with affected municipalities to determine the extent of their potential loss and ensure that service delivery is not affected.
”In the past few weeks, National Treasury and the Reserve Bank have been working closely to try and save the bank so as to protect ordinary depositors.
“It is never the intention of Treasury for any bank to be liquidated, particularly a small black-owned bank. National Treasury’s actions are trying to balance the need for a more diversified small banking sector against the need for well-run and well-governed municipalities.”
In 2016, the otherwise obscure VBS Bank hit the headlines because of its loan of R7.8m to the then president Jacob Zuma, to help him to tackle debts related to his Nkandla family home in KZN, following a Constitutional Court judgement.
Said the Governor: “The SA Reserve Bank is of the view that the appointment of a curator is in the best interest of the public and VBS depositors.”
He suggested that curatorship was “the most suitable and effective mechanism” to handle the crisis.
Accounting firm SizweNtsalubaGobodo was appointed curator. The aim of the curation process is to keep the bank afloat.
The DA released a statement welcoming the curation move, but expressing concerns about safety of municipal deposits:
”The DA had been concerned for the safety of municipal deposits for some time and therefore submitted a Parliamentary Question to the former Minister of Finance, Malusi Gigaba, probing the extent of exposure of municipal deposits with VBS,” said Kevin Mileham, the DA Shadow Minister of Cooperative Governance and Traditional Affairs
“Minister Gigaba responded, saying that only 2 municipalities had investments with VBS, as at the 30th of June 2016. The municipalities being West Rand District Municipality and Capricorn District Municipality.
“According to Governor Kganyago, this has subsequently increased to 21 municipalities, and deposits in excess of R1.5 billion.
“The DA, therefore, supports the actions taken by Treasury and SARB to safeguard the funds of municipalities and other depositors with VBS Mutual Bank.
“We will submit further questions to determine the true extent of municipal exposure, why and how this issue arose, and whether municipal officials will be held responsible for their illegal actions.”