Cape Town – VBS Mutual Bank was “severely mismanaged” and there is reason to believe there has been fraudulent reporting and manipulation of financial information, according to the initial findings of an assessment presented to the South African Reserve Bank by its curator auditing firm SizweNtsalubaGobodo.
This is according to an affidavit filed by the central bank on March 29, relating to a court application initially launched by Vele Investments, the majority shareholder of VBS. The affidavit was lodged by deputy Reserve Bank governor Kuben Naidoo.
The Reserve Bank placed VBS under curatorship in early March because of the bank’s severe liquidity crisis. Vele Investments wanted to challenge the placing of the bank under curatorship in court as "unconstitutional", but dropped the case in mid-March on the advice of its board.
At the time the investment group said it would work alongside the SARB and other stakeholders such as Treasury and the Public Investment Corporation to support the curatorship.
SizweNtsalubaGobodo started its duties as curators on Monday March 12, led by director Anoosh Rooplal. Naidoo and other representatives from the SARB met with the Rooplal’s team on March 22 for an update on the curator's initial findings.
In SARB's affidavit published on Tuesday, Naidoo said when Rooplal commenced its curatorship duties, VBS had a cash liquid position of over R24m and “ostensibly” held deposits amounting to R2.9bn.
Naidoo said the figure of corporate deposits of R900m is yet to be confirmed.
“It is uncertain as to whether these corporate deposits represent ‘true’ deposits and Mr Rooplal has to date been unable to confirm the amounts in respect of all these deposits were actually received by VBS Mutual Bank,” Naidoo said in the affidavit.
The findings by the curator also show that VBS was paying brokerage commissions to entities to attract deposits, mainly from municipalities.
“This is highly unusual for banks,” Naidoo said.
“The liquid cash position would not enable VBS Mutual Bank to repay deposits as and when required.”
Compromised financial information
“The integrity of the financial information of VBS Mutual Bank is highly compromised,” he said.
Naidoo explained there are “significant deficiencies” in the administration and management of the bank.
“The environment is such that the financial information is highly susceptible to financial manipulation and from Mr Rooplal’s initial assessment, he is of the view that there may have been considerable manipulation of the bank’s financial information.”
Naidoo added that Rooplal has reason to believe that the bank was mismanaged by its executive and its management committee.
“There may have been fraudulent reporting and fraudulent transactions conducted in order to extract money from the bank in order to further the personal interests of certain key individuals and companies related to the bank.”
Rooplal is also of the view that corporate governance at the bank is weak, Naidoo explained.
Naidoo said that given the preliminary findings of SizweNtsalubaGobodo, it is essential that the curatorship continue.
“This is not only necessary to protect depositors of VBS Mutual Bank and other parties, but to ascertain the true position as to what transpired at VBS Mutual Bank,” he said.
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