Why Bank had to backstop CPD
If you have never heard of the Corporation for Public Deposits (CPD), no-one would blame you. But this little-known subsidiary of the Reserve Bank serves an important role. It takes public-sector cash and invests it, mainly in shortterm government instruments, such as Treasury bills, commercial bank instruments and state-owned entity paper.
If you have never heard of the Corporation for Public Deposits (CPD), no-one would blame you. But this little-known subsidiary of the Reserve Bank serves a fairly important role.
It takes public-sector cash and invests it, mainly in shortterm government instruments, such as Treasury bills, commercial bank instruments and stateowned entity (SOE) paper.
So its discomfiting when reports emerge that it needed a guarantee from its central bank parent to remain a going concern after posting a loss of almost R2.8bn, raising the spectre of yet another SOE that needs propping up.
Rather than its own performance, however, in this case it is the CPD’s exposure to another parastatal, the embattled Land Bank, that hit its bottom line, as a recent Reuters report revealed.
In April, the Land Bank began defaulting on R44bn worth of debt, including money it owed the CPD. According to Reserve Bank deputy governor and CPD board chair Fundi Tshazibana, the CPD made a number of investments with the Land Bank by the time it closed out its financial year on March 31. In April, just before the Land Bank defaulted, the CPD made another investment, resulting in exposure to the ailing agricultural lender of about R1.2bn.
Under International Financial Reporting Standard (IFRS) 9 accounting rules, the CPD also had to make provisions for expected credit losses, given the economic climate and ratings agency Moody’s downgrade of SA on March 27. This affected many of the counterparties with which the CPD placed money, including commercial banks, said Tshazibana.
This was made worse by the Covid-19 pandemic, and the bleak economic outlook, which further increased the risk of losses, according to the CPD’s annual report. “But these are not all realised losses — they are expected given the economic environment and the risks our investments are exposed to,” Tshazibana said. The Reserve Bank’s R3.45bn guarantee ensured the CPD’s going-concern status, and was there to “give comfort to depositors that the entity is able to honour its obligations to depositors”, Tshazibana said.
Run essentially by the Reserve Bank, using its staff and accounting systems, the CPD holds about R72bn in deposits, which it must pay back, on demand and with interest, to its depositors.
Under its founding CPD act, it can invest money with SOEs, including the Land Bank and the Industrial Development Corporation, which was also recently downgraded by Moody’s.
The National Treasury and provincial treasuries are allowed to borrow money from the pool of funds deposited by the public sector, including by SOEs. “The wellbeing of the CPD is quite high on the list of the Reserve Bank’s priorities and we are engaging with Land Bank regarding the losses we have made,” Tshazibana said.
THE WELLBEING OF THE CPD IS QUITE HIGH ON THE LIST OF THE RESERVE BANK ’ S PRIORITIES
The CPD did not need cash, but if the guarantee were ever called on it would come from the Reserve Bank group as the CPD was a wholly owned subsidiary, she said.
It arguably bears testament to the battering the country is taking that an institution as vanilla as the CPD needed a guarantee to remain a going concern.
According to former Reserve Bank official Leon Myburgh, who served as a CPD director for seven years, this is the first time the CPD has posted a loss that he is aware of. The CPD was always managed in a conservative way “within the prescripts of the CPD act and its investment guidelines”, he said.