No guarantee municipalities will get VBS money back - SARB

Cape Town - The Reserve Bank has committed to recover the monies of retail depositors of VBS Mutual Bank; however, the same cannot be said for municipal deposits, a committee has heard.

The Standing Committee on Finance on Wednesday held a briefing on progress made on VBS Mutual Bank, since it was placed under curatorship by the Reserve Bank in March due to a liquidity crisis.

Deputy Reserve Bank Governor Kuben Naidoo briefed the committee on the bank’s status.

“Curatorship is ongoing, we have every intention to continue with curatorship to try protect depositor interest.

“The level of confidence we have that the bank can be saved and is salvageable is lower than the day it  started the curatorship,” he warned. “I am not saying zero, I’m not saying there’s no chance, we’ll continue to work in that direction.”

Naidoo previously told journalists at a briefing on the Bank Supervision Department annual report, that the situation at VBS Bank was worse than they thought.

The Reserve Bank also fined VBS R2.5m and suspended R2m for the year, for failure to comply with the Financial Intelligence Centre Act.

Naidoo explained that the Reserve Bank has not been able to put in place a mechanism to refund depositors of less than R50 000, because the Reserve Bank could not make an unsecured loan to VBS.

“The SARB Act does not allow us to put money in without security. To date we cannot establish the veracity of assets (loans) to determine if there is adequate security to put money in,” Naidoo said.

He added that it should take between two and three weeks to put in place the mechanism to refund retail deposits.

Municipal deposits

Naidoo however said that the SARB cannot explicitly guarantee recovery of municipal deposits. “It is highly likely municipalities will lose a significant portion of the money deposited.”

He said the Reserve Bank is in discussion with National Treasury and the Department of Cooperative Governance and Traditional Affairs (CoGTA) on what can be done, ultimately this is an issue Treasury and CoGTA must deal with as the SARB cannot refund municipalities.

“In an optimistic scenario where we recover all loans, it could take seven to 10 years to recover money to pay depositors, a highly unlikely scenario.”

The process of recovering money is ongoing, Naidoo assured. "I am pretty sure we will be able to pay the bulk of those retail deposits – perhaps even above the implicit guarantee of R50 000, we are working very hard to do that, we are working very hard to do that as quickly as we can."

He said that the focus has shifted to recovering money and the forensic investigation, commissioned in April to uncover possible fraud at VBS, is at a sensitive stage and cannot be compromised as it may affect the recovery of monies.

Naidoo confirmed it would take two to three months to conclude the work of the investigation. The investigation will also determine if the salvageability of the bank is likely.

Anoosh Rooplal, leading the curatorship team from SizweNtsalubaGobodo, explained that it is necessary to have financial statements of the previous year restated, as credible information is needed to move forward. The outcomes of the investigation are necessary to ensure recoveries are made, he stressed.

As for the curator’s fees, Rooplal said that the R2.6m went to SizweNtsalubaGobodo and he had not received monies in his personal capacity. He also said this amount should be benchmarked against other curators’ fees and what the executives of the bank had earned. 

We started with a liquidity crisis, but when we got into the bank as curator, in a short space of time we found there were more issues, he told SCOF. A curatorship process is complex, but this particular process with VBS is even more complex given the investigation.

The curator has a 12-person team looking at various issues. The curator has to make big decisions in a short space of time. For a bank, specialist skills and technical skills is required to run it and decisions are more pressured, he emphasised.

"You need experts to save a bank. You can't take an ordinary CA (chartered accountant) from the street to save a bank, it's important to understand. We report diligently to the Reserve Bank and the National Treasury."

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