It's not SARB's job to run the affairs of banks like VBS, says Kganyago

Its not the mandate of the SARB to run the affairs of private banks, its governor said on Friday, but rather to protect depositors and make sure banks adhere to prudential requirements.

SARB head Lesetja Kganyago was delivering an address at the Reserve Bank’s Annual General Meeting in Pretoria.

The governor said the Reserve Bank had been criticised for not picking up evidence of fraud at VBS Mutual Bank earlier. 

The bank, which was placed under curatorship in March, is at the centre of a significant and ongoing fraud saga. It is also the subject of a forensic probe. 

The accounts of all transactional retail depositors - which include individuals, stokvels and burial societies who currently have up to R100 000 in deposits - have been transferred to Nedbank.

"It is not the role of the regulator to run the bank. The regulator’s role is to protect the depositors of the bank, not the shareholders, and to ensure that the bank adheres to its prescribed prudential requirements," said Kganyago.  

"The governance of the bank is the responsibility of its board, and its operations are in the hands of management. It goes without saying that proper control systems and governance structures are of paramount importance."

The governor added that, given its relatively small size and "limited inter-connectedness with the rest of the financial sector", the mutual bank was not assessed to pose a systemic risk. 

Wrongdoing 

Kganyago said that the true extent of the wrongdoing at the mutual bank would only come to light once its financials had been restated. "Any evidence of wrongdoing will be handed over to the relevant law enforcement agencies."

Regulators – such as the SARB – have to rely on accounts provided by the bank. 

"These will have been signed off by both the internal and the external auditors. The auditors, in turn, rely on the information provided to them and cannot be held responsible if they are misled by fraudulent activities.”

But the governor warned that, if auditors are in any way complicit in the production of misstatements they will be held accountable. 

Speaking of embattled SA retailed Steinhoff International [SNH:JSE], whose share price plunged in December 2017 after auditors flagged accounting irregularities, Kganyago said the group's debt was "mainly concentrated in foreign banks".

"...the impact of a potential default on loans on the domestic banking system appears to be limited."

He said that the local banking system, in general, remained "sound and well capitalised", with no significant financial stability risks during the past year. 

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