Challenge to VBS curatorship withdrawn

Vele Investments, VBS Mutual Bank’s majority shareholder, has withdrawn its short-lived challenge to Finance Minister Nhlanhla Nene’s decision to place the beleaguered bank under curatorship.

After meeting representatives of the Reserve Bank and the Treasury late on Wednesday, Vele director Maanda Manyatshe instructed its attorneys to withdraw the intended legal action on Thursday afternoon.

“It was agreed that the parties will opt for an amicable resolution of their dispute,” Manyatshe said in the letter seen by Business Day.

“We welcome Vele Investment’s decision to withdraw the court action against curatorship of VBS,” VBS curator Anoosh Rooplal said.

“We believe curatorship is the correct decision to provide a possibility to restore the bank.”

Vele had earlier notified the finance minister, the registrar of banks and Rooplal that it intended applying to the court to

set aside the curatorship because it was inconsistent with the Constitution.

In the founding affidavit, Manyatshe said the Bank’s decision to place VBS under curatorship, triggered by severe liquidity challenges, was not constitutionally sound as banking regulations on with curatorships infringed the rights of the people affected by them.

Previously, the placing of a bank under curatorship required the written consent of the bank’s board of directors or CEO, but this was amended in 2013 to allow for curatorships without such written consent or even the involvement of the courts.

Manyatshe said banks registrar Kuben Naidoo had failed to consider a R1.5bn loan from the Public Investment Corporation (PIC), which would have addressed the liquidity crisis posed by municipalities attempting to withdraw about R507m in deposits, when he recommended placing the bank under curatorship.

VBS had taken municipal deposits — for up to six months — to the tune of R1.5bn, according to the Bank.

These funded the bank’s rapid growth in loans and advances, most of which comprised long-term mortgage loans.

The Municipal Finance Management Act prohibits municipalities from dealings with mutual banks, which led to VBS’s liquidity problems following the Treasury communications alerting municipalities to this restriction.

According to Manyatshe, the PIC — a 26% shareholder in VBS — had been considering granting a R1.5bn loan that would have improved VBS’s “liquidity figures”.

Naidoo was informed of this at a meeting on March 8, and the PIC’s investment committee was due to meet the following day to consider the loan.

The decision of the investment committee meeting would have been made known on March 12.

VBS chairman Tshifhiwa Matodzi confirmed to Vele that Naidoo had agreed to hold back on his decision to place the bank under curatorship until the PIC decided on the loan.

The PIC did not respond to questions from Business Day, despite an undertaking to do so.

Manyatshe alleges Naidoo reneged on this agreement by placing the bank under curatorship on Sunday.

It emerged on Monday that the PIC had agreed to lend VBS R700m.

“In the letter advising the VBS Mutual Bank of the appointment of the curator, the registrar of banks makes a material error of fact by stating the PIC loan application has failed,” said Manyatshe. “His recommendation to the [finance minister] was based on this factual error … and is reviewable on that basis.”

Manyatshe could not comment at the time of publication, saying that he was locked up in meetings.