Lesetja Kganyago said the central bank was looking at four 25 basis points hikes by the end of 2020. This would bring the repo rate to 7.5% by the end of 2020. (Bloomberg)
UPDATE:
Finance Minister Nhlanhla Nene said during the weekend that he has approved the decision to place VBS Mutual Bank under curatorship and said the aim was to “turn the business around” and ensure long term sustainability of the bank.
On Sunday, the South African Reserve Bank (SARB) announced that it had placed VBS Mutual Bank under curatorship because of liquidity challenges which arose because of the banks reliance on illegal municipal deposits.
In a statement issued on Sunday, National Treasury said it had been working to try and find an orderly resolution to the problem of municipalities placing deposits with VBS in contravention of the MFMA since late 2016. It said the issue of municipalities investing in mutual banks was also raised in a series of parliamentary questions during the course of 2016 and 2017.
“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,” said the statement.
Contrary to VBS chairperson Tshifhiwa Matodzi’s claims, Treasury says it never instructed municipalities to withdraw their deposits in VBS.
“Over six months ago, in August 2017, 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,” said the statement.
The Treasury said the rationale for restricting municipalities and their entities from placing funds into mutual banks was meant to ensure that funds meant for service delivery were managed as responsibly as possible.
Treasury will now be engaging with the affected municipalities to determine the extent of their potential loss and ensure that service delivery is not affected.
It said it had worked closely with SARB 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.
“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,” it ended.
The South African Reserve Bank (SARB) announced on Sunday at 5.00 pm that it was putting VBS Mutual Bank under curatorship. It rubbished claims of victimising the bank because it is black-owned, saying all banks were indiscriminately regulated under the Banks Act.
“If you apply for a banking license and you are taking deposits you will be supervised in terms of the banks act, irrespective of who owns you. This notion that the SARB decided to attack a black bank has got to be condemned,” said governor Lesetja Kganyago.
VBS Mutual, which is popularly known for loaning former president Jacob Zuma R7.8-million to pay back the state for his Nkandla homestead, was put into curatorship because of liquidity problems.
“The liquidity challenges emanated from the maturity of a large concentration of the deposits from municipalities and was exacerbated by the termination of other sizable deposits and the inability to source sufficient funding timeously,” said Kganyago.
“It was highly risky for VBS to take sizeable, municipal deposits that were short-term and lend them put long-term.
“The liquidity challenges faced by VBS resulted in difficulty to settle its obligations in the National Payments System on several occasions,” he said.
Addressing the media at the central bank headquarters in Pretoria on Sunday, Kganyago explained that the bank had been facing liquidity challenges over the last 18 months after its board of directors and executive and management failed to manage the mutual bank’s rapid growth and its funding and liquidity position.
Deposits of R50 000 per depositor are guaranteed. Other depositors “are hereby informed that the curator will act in the best interests of all creditors,” the SARB in a statement.
About 21 municipalities had been making deposits with the bank which the registrar of the banks Kuben Naidoo said amounted to about R1.5-billion of the bank’s assets of just over R2-billion. The municipalities are understood to have withdrawn their funds from VBS.
Naidoo said other assets include a mortgage loan book of around R300-million mainly to people in Limpopo who have tribal land or permission to occupy. They also have about R1-billion in “small business finance” mainly to people who have tenders or contracts with government.
The Public Investment Corporation, which invests monies on behalf of state pensioners is a 25% shareholder in the bank. Asked what will happen to this investment, Kganyago said only the PIC could speak on this issue.
SizweNtsalubaGobodo Advisory Services has been appointed as the curator and will be represented by head of financial services Anoosh Rooplal.
VBS is not a commercial bank and the order by Treasury, which was given early last year, states that the Municipal Finance Management Act (MFMA) forbids municipalities from investing in mutual banks.
Sarb said it believed that appointing a curator would be in the best interest of the public and the bank’s depositors. “Through curatorship, the SARB is given the legal means to create the necessary mechanisms to implement a resolution plan which will seek to ensure the sustainability of VBS,” said Kganyago.
City Press newspaper reported on Sunday that the bank’s liquidity problems came after a number of municipal councils withdrew more than R1-billion in investments at the instruction of the treasury. It reported that VBS’s cash reserves were dangerously low that its executives said the only hope is for the Public Investment Corporation (PIC) inject R1.5-billion.
Published excerpts from a “strongly worded letter” written by VBS chairperson Tshifhiwa Matodzi to banks registrar Naidoo and treasury director-general Dondo Mogajane paint a picture of “non-cooperation” by Treasury and SARB to come to an arrangement without collapsing the bank.
Matodzi said they had tried to make arrangements with Treasury since March 2017 to allow the bank to “either wind down the municipal book quietly over a period of time, or be granted a deviation to continue taking these deposits, as the bank was about to apply for conversion to a commercial banking license, a process which takes between 12 and 18 months”.
However, Naidoo said they only said VBS only applied for a commercial banking license on February 26, 2018.
Matodzi also argued that the way the situation was handled indicated that not all banks were not “treated the same”. He accused Treasury of creating the impression that black banks were unwelcome in the system and that “black management is incompetent and noncompliant”.
“It is clear that one of our greatest sins had been to give the former president [Zuma] a loan and running a successful black bank”.
Matodzi said that after a recent meeting with the PIC, Mogajane and Naidoo, it became clear that treasury was not interested in any form of arrangement.
“From that day, one immediately realised that the fate of the bank was actually already decided from August and the negotiations were simply meant to drain the bank’s liquidity to a point where it had no choice but to face curatorship.”
The Economic Freedom Fighters (EFF) have also come to the bank’s defence saying it was being victimised and called on finance minister Nhlanhla Nene to not agree to the curatorship.
In a statement EFF spokesperson Mbuyeseni Ndlozi said, “opting for curatorship as the first measure undermines the bank and undermines black people’s participation in the ownership and control of financial service institutions.
“EFF is aware that VBS is being victimised due to a loan it gave to Mr. Jacob Zuma for a house in Nkandla.
“Pursuing the victimisation of a bank for this purpose is plainly wrong because VBS is the only bank which had a plan to finance properties and mortgages in rural areas”.
VBS Bank was established in 1982 and is one of three mutual banks in South Africa. Mutual banks are owned by their depositors who are entitled to vote at shareholder meetings.
This article has been amended to reflect updates.