VBS may be unable to meet obligations

VBS Mutual Bank may not be able to continue as a going concern, as fresh uncertainty arises over the bank’s ability to meet its long-term financial obligations. “It appears as though VBS has not just a liquidity problem, but a solvency problem,” registrar of banks and deputy Reserve Bank governor Kuben Naidoo said on Tuesday. /

VBS Mutual Bank may not be able to continue as a going concern, as fresh uncertainty arises over the bank’s ability to meet its long-term financial obligations.

“It appears as though VBS has not just a liquidity problem, but a solvency problem,” registrar of banks and deputy Reserve Bank governor Kuben Naidoo said on Tuesday.

“I was reasonably confident we could save it [when it was first placed into curatorship], I’m slightly less confident now,” Naidoo said.

Liquidity refers to a company’s ability to meet short-term cash-flow needs, while solvency refers to its ability to meet long-term debt obligations.

Naidoo was speaking at a roundtable discussion on blackowned banks, hosted by the Association of Black Securities and Investment Professionals.

The Bank placed VBS i nto curatorship in March following a cash crunch brought on by the withdrawal of deposits by municipalities.

There was a social media backlash, as well as pushback from VBS management as the bank was black-owned.

Commentators, including then VBS chairman Tshifhiwa Matodzi, said that the Bank and the Treasury had treated VBS unfairly.

The Treasury instructed municipalities to withdraw funds from VBS, as it was a contravention of the Municipal Finance Management Act to deposit with a mutual bank.

Once the Bank became aware that VBS was unlawfully accepting municipal deposits, it worked with the bank to pay back those deposits. “Unfortunately, the execution was in the … opposite direction.”

Rather than follow the plan to pay deposits back to the 13 municipalities that had placed money in the bank, VBS accepted deposits from eight other municipalities, growing its book from R1bn to R1.5bn.

VBS extended long-term loans, such as mortgages, using short-term deposits, which led to its liquidity issues.

The problem may be deeper than a short-term cash shortage. There may be no money to meet obligations to depositors.

There were “big problems” at VBS, Naidoo said. Significant fraud had been uncovered and “depositors’ funds [had gone] … missing”. Naidoo said he hoped something was “salvageable”.

Following prima facie evidence of fraud, uncovered by curator Anoosh Rooplal, the Bank instituted a forensic investigation. Advocate Terry Motau is lead investigator.

The curator has been unable to account for R900m in corporate deposits and uncovered large, related-party transactions between VBS, related companies and staff. The Bank has said that it would guarantee retail deposits amounting to R50,000.