SARB places VBS Mutual Bank under curatorship

Cape Town – The South African Reserve Bank has placed VBS Mutual Bank under curatorship, Governor Lesetja Kganyago announced on Sunday. 

The Reserve Bank called a briefing following a report in the City Press that the mutual bank is facing a liquidity crisis after Treasury instructed municipalities to stop investing with the bank. A number of councils withdrew more than R1bn from the bank after Treasury gave the order early last year.

Kganyago said that given the severity of the liquidity crisis VBS is facing, the minister of finance, upon the recommendation of the Registrar of Banks has placed the bank under curatorship with effect of Sunday March 11, 17:00.

“The SA Reserve Bank is of the view that the appointment of a curator is in the best interest of the public and VBS depositors,” he said.

Curatorship is considered the most suitable and effective mechanism to facilitate orderly management of VBS Bank, said Kganyago.

Auditing firm SizweNtsalubaGobodo has been appointed curator, the current board and management at VBS are relieved of their powers.

Kganyago noted that VBS had grown rapidly over the past few years. Deputy Governor Kuben Naidoo confirmed that the bank had grown from a balance sheet of R150m three years ago to over R2bn, mainly due to an increase in municipality deposits. The bank has over R1.5bn in municipal deposits, said Naidoo.

But in terms of the Municipal Finance Management Act (MFMA), it is not legal for municipalities to make deposits into mutual banks as they are not registered in terms of The Bank’s Act, Kganyago explained.

“So municipalities with deposits with VBS had broken the law, and so did VBS in accepting the deposits.”

The Reserve Bank picked up an increase in deposits from municipalities at VBS Bank 18 months ago, said Naidoo.

“We put bank under intensive supervision and engaged on the risks involved,” explained Naidoo.

One of the issues is that VBS took short-term municipal deposits and lent them long term. When the municipalities asked for their money back, the bank was unable to pay it, he said.

“It is risky business to take large municipal deposits, from municipalities that need cash, and put them in long term loans,” he said. This would ultimately lead to liquidity problems.

Despite having communicated to the bank the risk of the situation and asking it to review its business model and reduce its dependence on large deposits from municipalities, VBS increased the deposits it took and the amount it lent, said Naidoo.

Naidoo said the Reserve Bank engaged with the two largest shareholders of the bank; the Public Investment Corporation and Vele Investments; and its board and management requesting the bank to develop a rescue plan. 

Naidoo said it was unlikely that the shareholders would be able to provide the necessary cash injection within time to manage the liquidity crisis. "After an exhaustive process of engaging with the board, management and shareholders, there was no other solution besides curatorship," he said. 

Listing on hold

Kganyago said that the curator will assess if the situation at the bank is still salvageable and the options it will have going forward.

“No bank goes into curatorship and continues with the business model it had before going into curatorship,” said Kganyago.

Kganyago said that the bank’s planned listing on the JSE has been postponed pending the completion of the curatorship process. 

VBS came into the spotlight when it was revealed that the bank granted the former president a R7.8m bond to pay for security upgrades at his Nkandla residence.

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