What happened at VBS Bank?

VBS het sy wortels in ’n bouvereniging van die 80’s wat in Venda gesetel was.
VBS het sy wortels in ’n bouvereniging van die 80’s wat in Venda gesetel was.

As VBS Mutual Bank’s spectacular crash reverberates across the country, an accurate account of how the promising black bank sank has to be told.

The current refrain and single-track narrative that VBS collapsed under the weight of an inept and rapacious black management, is at best inaccurate and at worst a fabrication.

In the absence of facts, the prevailing narrative sponsored by some with vested interests and a twitter mob desperate for retweets, a fair and balanced analysis is rare.

But the truth is there to find.

A closer look at VBS will show that the catastrophe was the result of a combination of factors – poor management, a heavy dose of powerful commercial interests, poor regulation and a tinge of politics.


So much has happened at VBS since City Press reported that the SA Reserve Bank (SARB) would place it under curatorship. The flagrant excesses of the VBS executives is now well known. But let’s take a step back.

The SARB placed VBS under curatorship owing to a liquidity crisis caused by National Treasury instructing municipalities to withdraw their deposits. It was not because of corruption. This is important.

Respected Treasury executive Ismail Momoniat instructed about 15 municipalities to stop depositing funds into their VBS accounts because the Municipal Finance Management Act (MFMA) forbade them from investing in a mutual bank.

VBS didn’t break the law – there is no law forbidding mutual banks from taking deposits from any individual or entity.

Momoniat correctly argued that municipalities should use their equitable shares to deliver services. But municipalities still invest funds in other banks, and it remains unclear why the MFMA forbids local authorities from investing in mutual banks.

In a sector desperate for transformation, Momoniat’s decision, although correct, raises significant questions about Treasury’s commitment to efforts to create a meaningful black player in banking, insurance and asset management. Treasury could have given the bank up to two years to wind down municipal deposits.

But Treasury is not alone. The Reserve Bank also failed the bank. Central banks go out of their way to prevent bank collapses. SARB and VBS held a series of meetings, but there is no indication that Reserve Bank officials tried to save VBS. SARB rescues other banks regularly, but for the credibility of the system to be maintained, the bailouts remain top secret.

Last year, a senior SARB executive told me how, a few years ago, one of the major banks ran into trouble when a local multinational wanted several billion rands to seal a deal. But the bank didn’t have the money and SARB stepped in and injected short-term liquidity and life went on.

The system has another critical shortcoming – the Reserve Bank is both player and referee. If Lesetja Kganyago and his deputy, Kuben Naidoo, feel a bank should be placed under curatorship, they make a recommendation to their boss, the Finance Minister, who signs it off.

There is no independent arbiter, such as a court, to determine whether the decision is motivated by other interests. Vesting such unbridled power in the hands of fewer than five Reserve Bank officials is dangerous.


It remains curious why the Public Investment Corporation (PIC), which has a R350m (27%) stake in VBS, refused to lend it some R1.5bn to ease its liquidity crisis.

It is an open secret that shortly after VBS was placed under curatorship, a number of companies, backed by powerful proxies with close links to the PIC, approached the bank’s curator Anoosh Rooplal with offers.

This gives credence to the theory that the PIC refused to lend VBS the R1.5bn to force its collapse, only for it to be snapped up by a band of super-wealthy black elite close to the PIC.

A hostile takeover bid launched last month by black-owned investment group Lebashe Financial Services for the Bophelo Insurance Group (BIG) offers insights into how VBS’s crash could have been engineered by the PIC and its proxies.

BIG is formed out of Inzalo Insurance and Bophelo Life Insurance (BLI).

Vele Investments, VBS’s majority shareholder, owns 70% of BIG. The remaining shares belong to the PIC. BIG began having financial trouble early this year because of its exposure to VBS.

On May 31, Lebashe wrote to Naidoo, offering to buy Vele’s 70% stake in BIG. A few days later, on June 4, Naidoo wrote to BIG’s directors, informing them that if they don’t find R100m by June 8, he would liquidate Inzalo Insurance and place BLI under curatorship.

Was this a coincidence?

The following day, on June 5, Norton Rose Fulbright law firm wrote to Mvunonala Holdings on Lebashe’s behalf, informing the company it planned to buy it for R10 because it was worth nothing. Vele bought Mvunonala last year. However, the transfer of Mvunonala to Vele was not completed because certain suspensive clauses had not been fulfilled.


A week later, Lebashe offered to lend BIG R100m to inject some much-needed liquidity, in return for all the company’s shares as security. This did not go through. This week, a contract was drafted for Lebashe to acquire BIG’s shares for R1, in return for capitalising the company with more than R100m.

But who is Lebashe and where does a company that was registered last year get R100m from? The answer lies in Lebashe’s directors, Warren Wheatley, Tshepo Mahloele and Jabu Moleketi.

Mahloele is a former PIC executive, while Moleketi is a former deputy finance minister and PIC chairperson. Moleketi is non-executive at Lebashe Financial Services, a firm of which Mahloele is executive director.

Mahloele is chief executive of Harith Fund Managers and Moleketi is the firm’s chairperson.

The PIC owns 46% of Harith Fund Managers and 30% in parent company Harith General Partners.

But why does Lebashe want BIG, a worthless and debt-ridden entity, so badly?

The answer is buried on page nine of the PIC’s 2016 annual report, where the PIC makes it clear that through BIG it plans to “use this investment as a vehicle to develop financial products for clients and its clients’ members and dependents”.

This means that once Lebashe acquires BIG, the PIC will move its multibillion-rand short- and long-term insurance needs and those of its clients and their members to BIG, from which Lebashe and its directors stand to make millions.

Over and above an unsustainable business model, VBS had glaring management issues. But long before the problems were exposed, the vultures who realised the bank’s potential were already circling, hoping to snap it up for a song. But regulatory complications have so far stood in their way.

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