SARB: Auditors were part of the VBS Mutual Bank conspiracy

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Kuben Naidoo is the newest deputy governor of the Reserve Bank. (Supplied)
Kuben Naidoo is the newest deputy governor of the Reserve Bank. (Supplied)

The audited financial statements of VBS Mutual Bank which were submitted to the Reserve Bank were not reliable, Parliament heard.

The Standing Committee on Finance on Wednesday heard from SA Reserve Bank Governor Lesetja Kganyago, Deputy Governor Kuben Naidoo and others about the processes followed in handling VBS Mutual Bank's curatorship. The Reserve Bank placed VBS under curatorship earlier this year as it was facing a liquidity crisis.

Naidoo shared what he believed was the "most salient" lesson learnt from the VBS matter. 

“We overly relied on the audited financial statements [of VBS],” Naidoo said.

He explained that banks are expected to submit returns to the Reserve Bank, sometimes on a monthly or a quarterly basis. These returns must be signed off by the bank’s senior management, the CEO and auditors.

“It is quite obvious in hindsight that the data that was submitted on a monthly basis or a quarterly basis by VBS was not accurate, even though the auditors approved it,” he said. “That is why we were not able to pierce that veil because auditors were part of that conspiracy.”

Naidoo said this shows that other ways to verify financial statements must be explored, not only for small institutions but all banks.

It is a serious offence for banks to submit untrue data to the Reserve Bank. Banks could lose their licence or be imposed a significant fine. “If any bank giving us data on a monthly basis or quarterly basis – whether those are audited or not – if those are not accurate it is an incredibly serious violation,” Naidoo said.

He also explained why Nedbank was chosen to facilitate repayments to VBS deposit holders, as EFF MP Floyd Shivambu wanted to know if a proper bidding process had been followed.

Naidoo said that no competitive bidding process was followed, there were two criteria which had to be met, these are related to costs and geography. Based on the recommendation by the curator, Nedbank was chosen.

“The welfare of the depositors and the speed of execution was important,” Naidoo explained. We looked at banks offering similar products and their cost structure. We chose the bank with those products at the lowest fees. 

Kganyago suggested that the curator’s report be made available to the committee, to satisfy MPs of their choice.

Deputy governor Francois Groepe expressed disappointment that MPs were suggesting impropriety by the leadership of the bank. He said that the Reserve Bank had asked probing questions and debated before the final decision was taken.

“There is no hesitation of the leadership of the bank to avail the report outlining the process,” said Groepe. “It is a pity that aspersions are cast on leadership of the bank as to how the decision was made.”

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