Bank failure rocks battling municipalities
The West Rand’s plight could be a harbinger of problems for municipalities invested in VBS
The fate of money belonging to municipalities and funds meant for the beneficiaries of deceased miners is now tied to the fortunes of embattled VBS Mutual Bank, which was placed under curatorship by the South African Reserve Bank over the weekend.
A complex set of relationships between VBS and its largest shareholder, Vele Investments, has added additional uncertainty to an already fraught situation.
At the end of 2017, about 21 municipalities and the Bopehlo Beneficiary Fund (BBF) and its administrator Bophelo Benefit Services (BBS) had deposits with VBS.
The problem facing at least one of these municipalities, the West Rand district municipality, came to light on Thursday.
In a statement, Adriana Randall, the Democratic Alliance’s Gauteng spokesperson on finance, said the municipality had about R81-million invested with the bank.
The municipality’s executive manager for corporate services, Rethabiseng Mokebe confirmed that it had placed the money with VBS.
But the municipality remains confident that the curator will sufficiently and competently deal with the matter Mokebe said.
The bank suffered a liquidity crunch when it could not pay back a large concentration of municipal and other deposits, ultimately leading to it being placed under curatorship on Sunday. It is unclear how much municipal money is trapped at the bank. One estimate puts it at R1-billion, possibly more. The Reserve Bank has refused to comment on the amount, which it said would have to be determined by the curator.
The curatorship is a double blow for the Bophelo entities. They hold and administer funds for beneficiaries of mineworkers, and both were subsidiaries of Mvunonala Holdings. In mid-2017, the BBF and BBS were placed under curatorship by the Financial Services Board (FSB), after the misappropriation of at least R255-million of the BBF’s money was uncovered.
Last year, Vele Investments, which is also the largest shareholder in VBS (the second-largest is the Public Investment Corporation) bought Mvunonala Holdings.
Part of the R410-million transaction was to be used as a partial recovery of the shortfall in the funds, according to Juanito Damons, the curator of the BBF and BBS. About R370-million was placed at VBS in the name of BBS and was due be withdrawn by the end of February 2018, he said. According to Olano Makhubela, the FSB’s deputy executive officer for the pension department, other Mvunonala entities owned by Vele may also be affected by the curatorship.
As part of the acquisition of the Mvunonala group, Vele Investments acquired other financial institutions, including Mvunonala Asset Managers, Nzalo Insurance Services, Bophelo Life Insurance Limited and Bophelo Tracing Services.
“From the information available, Mvunonala Asset Managers, one life insurer and, as mentioned above, the Bophelo Beneficiary Fund, are impacted as it holds deposits with VBS Mutual Bank,” Makhubela said.
Damons said that, at the time of negotiating the transaction, he had no reason to doubt the solvency and liquidity of VBS. As part of the final negotiations of payment, it was stipulated by “the counter to the transaction”, Vele, that the funds had to be paid to VBS.
When Damons called on the funds at the end of February, VBS failed to make the payment. Now money cannot be withdrawn without the consent and co-operation of the curator of the bank, Damons said. “If there is a significant delay in the repayment of the funds to me, this may affect the ability of BBS and BBF to pay future benefits.”
He said he had sufficient funds under his control to make the full payment of benefits due under the funds in the short term. But the potential prejudice to beneficiaries would depend on whether the full amount of the funds held at VBS could be repaid, and the time this would take.
The Reserve Bank has appointed Anoosh Rooplal, a director of auditing firm Sizwe Ntsaluba Gobodo, as curator. The Reserve Bank has guaranteed deposits up to R50 000, but this is unlikely to cover the full amounts deposited by pension funds and municipalities.
Makhubele said the curator and the Reserve Bank were very aware of these concerns. Rooplal said his first priority is to stabilise the bank and to protect depositors. “Curatorship is meant to be an aid to possibly restore VBS Mutual Bank. The process is, however, complex and we need time to investigate the affairs of the bank,” he said.
His team had the legal means to implement a resolution and this would take into account the interests of all depositors, creditors, staff and relevant stakeholders.
The chairperson of VBS, Tshifhiwa Matodzi, was also the chairperson of Vele but he resigned from the Vele post on Tuesday.
The spokesperson for Vele Investments, Ndivhuwo Khangale, said the company would support the curator but it did not want to comment on a number of other issues while the process was unfolding.
Matodzi did not respond to requests for comment.
In an angry letter to Kuben Naidoo, the Reserve Bank’s registrar of banks, Matodzi accused the Reserve Bank and the treasury of