/ 12 March 2018

VBS bank could come out of curatorship stronger— Treasury

The South African Reserve Bank
The South African Reserve Bank

National Treasury said placing VBS Mutual Bank under curatorship is a better option than liquidation.

The South African Reserve Bank (SARB) on Sunday placed VBS under curatorship because of a liquidity crisis.

READ MORE: SARB: VBS Mutual Bank is not being punished because it’s black-owned

In August 2017, Treasury issued a circular informing municipalities not to make deposits into the mutual bank as this was prohibited by the Municipal Finance Management Act. As a result, several councils withdrew more than R1-billion in deposits.

The decision to place the bank under curatorship was triggered on February 16 when the bank was unable to honour an obligation of the National Payments System, explained SARB deputy governor Kuben Naidoo.

The SARB engaged with shareholders, management and the board of VBS to develop a rescue plan. “After an exhaustive process of engaging with the board, management and shareholders, there was no other solution besides curatorship,” he said. 

Treasury confirmed in a statement issued late on Sunday that the minister of finance approved the recommendation by the Registrar of Banks to place VBS under curatorship.

“The aim of curatorship is ultimately to turn the mutual bank around. This is in contrast with liquidation, where the mutual bank is closed down,” said Treasury.

“The curator is given the legal means to create the necessary mechanisms to implement a resolution plan which will ensure the long-run sustainability of VBS.

“The recent example of African Bank, which emerged as a stronger bank after curatorship, should be noted.”

Treasury explained that restricting municipalities from investing in mutual banks is consistent with ensuring municipal funds are managed responsibly.

Risky business

During the briefing, Naidoo highlighted that 18 months ago the SARB became aware that the mutual bank was taking a large number of deposits from municipalities. 

One of the issues is that VBS took short-term municipal deposits and lent them long term. When the municipalities asked for their money back, the bank was unable to pay it, he said.

“It is risky business to take large municipal deposits, from municipalities that need cash, and put them in long-term loans,” he said. This would ultimately lead to liquidity problems.

Treasury said it will engage with affected municipalities to determine the extent of their potential losses 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,” Treasury said.

Both the SARB and Treasury have been critcised by the Economic Freedom Fighters for undermining and hindering the participation of black people in the financial services sector.

VBS board chair Tshifhiwa Matodzi also accused them of targeting black-owned banks, according to a report in City Press.

However, SARB governor Lesetja Kganyago said it is “plain wrong” to view the central bank’s actions as an attack on a black bank.

“The colour of money is red, it is green, yellow, it’s blue. If you apply for a banking licence and you are taking deposits you will be supervised in terms of the Banks Act, irrespective of who owns you,” he said.

“The notion that the Reserve Bank decided to attack a black bank has to be condemned.”

Treasury also responded to the allegations in its statement. “It is never the intention of Treasury for any bank to be liquidated, particularly a small black-owned bank,” the statement read.

“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.”

VBS came into the spotlight in 2016 when it granted former president Jacob Zuma a R7.8-million bond to pay for security upgrades at his Nkandla residence.

The bank was fined R500 000 in 2017 because of weaknesses in its control measures to prevent money laundering and combating the financing of terrorism, Bloomberg reported.