/ 9 July 2018

VBS’s future in doubt

At a press conference on Monday
At a press conference on Monday

Individuals, stokvels and burial societies who held money with embattled VBS Mutual Bank can begin drawing their deposits — up to the value of R100 000 — from Nedbank branches on Friday.

While the future of these funds has been secured, the future of the bank itself is far less certain, as allegations of fraud of “epic proportions” have emerged, and the bank begins proceedings to retrench staff.

At a press conference on Monday, South African Reserve Bank (SARB) Governor Lesetja Kganyago, along with the bank’s curator Anoosh Rooplal, announced a plan to secure the funds of some of the 22 700 depositors of the bank.

A treasury guarantee provided to the SARB will cover roughly R336-million worth of deposits, around 97% of the funds retail depositors held with the bank.

But the deposits of commercial entities and municipalities will not be covered by the guarantee. Roughly R1.5-billion in municipal deposits were held by the bank before it was placed under curatorship earlier this year.

Only once the bank’s 2017 financial statements are restated — a process that is likely to take several months — can a definitive assessment be made about VBS’s true financial position and the future of the bank. The financials were withdrawn in April because they did not present an accurate account of the bank’s financial state.

The bank was “in a dire financial position,” said Rooplal. The allegations of extensive fraud notwithstanding, the bank had “a bloated cost structure” along with unprofitable branches.

“My role now is to curtail costs,” he said.

“I have no choice but to implement a retrenchment process”. This would be done in a “responsible manner” and in communication with staff the bank’s curator added.

Meanwhile, the ongoing forensic investigation led by advocate Terry Motau, into possible fraud and malfeasance at VBS, will be completed by late August or early September.

Initial findings of the investigation, which were shared with the curator, enabled it to begin civil proceedings to recover some of the funds owed to VBS last week. On Friday, Rooplal filed an application to liquidate Vele Investments, VBS’s majority shareholder.

Rooplal contends in the application that Vele, along with its “controlling minds” perpetrated fraud against the Bank as well as its depositors. In the affidavit Rooplal outlined what he termed a “fraudulent scheme of epic proportions” led by senior VBS’s officials, amounting to at least R1.5-billion.

The sheer scale of the fraud identified had complicated the curatorship process Rooplal told journalists.

“The curatorship process has been significantly derailed by the fraud,” he said, adding that he did not have a credible set of financial statements to begin with. As a result the curatorship team was not as confident that the bank could be restored, as it had been at the beginning of the process Rooplal said.

Regulators cannot defend against fraud

Kganyago defended the role the SARB —which regulates the country’s banks — had played in spotting the emerging problems at VBS.

No supervisory or regulatory framework, however robust, could see a problem like this emerging “if management is determined to commit fraud,” he said.

Nevertheless it was practise in South Africa, that in the event of a bank failure, the SARB institute an inquiry to determine, amongst other things, whether there was anything the banking regulator may have missed.