Deep in un­banked coun­try, a so­phis­ti­cated heist re­lies on po­lit­i­cal cover

Sunday Times - - Opinion -

The South African bank­ing sys­tem is by its na­ture prone to cri­sis from time to time. It ex­ists in an econ­omy that has two strands to it. One strand is highly so­phis­ti­cated, with fi­nan­cial sys­tems on par with those in some of the world’s lead­ing fi­nan­cial cen­tres. The sec­ond strand, the one where most South Africans live their lives, is one that bet­ter fits the clas­sic def­i­ni­tion of a de­vel­op­ing econ­omy. Here, banks lend to a sec­tor of the econ­omy that is dogged by des­per­ately low wages and chronic un­em­ploy­ment. Lend­ing here comes with cer­tain risks, but to bar the big four banks with their high bor­row­ing costs from lend­ing to this seg­ment of the econ­omy would be to leave peo­ple on this rung of so­ci­ety to the worst of the in­for­mal lend­ing sec­tor, a law­less world of loan sharks.

So we have to ac­cept that bank­ing col­lapses such as that of African Bank about four years ago are bound to hap­pen, and that it’s rather easy to stir up con­cerns around the health of rel­a­tive new­com­ers to the bank­ing scene such as Capitec, as its busi­ness model is heav­ily re­liant on dish­ing out un­se­cured loans. The Re­serve Bank, charged with reg­u­lat­ing SA’s bank­ing sys­tem, has its hands full mon­i­tor­ing the un­se­cured lend­ing mar­ket and putting out fires that are oc­ca­sion­ally stoked by the mar­ket.

But then there is the pe­cu­liar case of VBS Mu­tual Bank, a small bank that hails from one of the most des­ti­tute re­gions in one of the coun­try’s poor­est prov­inces, Lim­popo. In terms of its ef­fects on the sta­bil­ity of SA’s fi­nan­cial sec­tor, it is hardly a blip on the radar. It has 22,000 de­pos­i­tors, as against the mil­lions of debtors ex­posed to the col­lapse of the old African Bank. VBS is a bank that shouldn’t be play­ing in the big leagues at all, but rather pro­vid­ing the smaller loans needed by the com­mu­nity it ser­vices.

When it lent for­mer pres­i­dent Ja­cob Zuma more than

R7m to re­pay the state for ren­o­va­tions to his Nkandla home­stead, the bank sud­denly emerged onto the big stage. It was clear to all that there was some­thing fishy about the op­er­a­tions of an in­sti­tu­tion that could af­ford to take such a big bet on a pub­lic ser­vant who had long since passed re­tire­ment age.

What we dis­cov­ered this week in the Re­serve Bank-man­dated re­port, “The Great Bank Heist”, was that, over the past three years and un­der the cover of ap­proval of au­dit firm KPMG, a rather “so­phis­ti­cated” bank­ing heist was tak­ing place in Tho­hoyan­dou.

Gov­er­nance in VBS all but col­lapsed, with the credit com­mit­tee ren­dered use­less. It’s a com­mon theme among in­sti­tu­tions that have done busi­ness with the for­mer pres­i­dent.

Po­lit­i­cal cover was en­sured by is­su­ing blank cheques to prom­i­nent peo­ple in SA’s body politic, the de­tails of which will emerge in weeks and months to come.

When the Re­serve Bank first took ac­tion against VBS, the loud­est protests were from peo­ple such as EFF leader Julius Malema, who called it an at­tack on a black bank.

By March 2014, VBS had a loan book of more than R210m, about 99% of those loans for mort­gages. Fast-track to three years later, and that loan book had grown to more than R1bn, with home loans ac­count­ing for only 30% of the book. Sud­denly, con­tract fi­nance made up roughly 40% of the debtors book.

Con­tract fi­nance? For what ex­actly? This week, we may have come close to an an­swer: the fi­nanc­ing was meant to fund the glut­tony of the bank’s lead­ing ex­ec­u­tives and for the men and women that they had to pay for their si­lence, among them a se­nior au­di­tor and prom­i­nent po­lit­i­cal fig­ures in the mu­nic­i­pal­i­ties that were co­erced to place huge de­posits in the bank to keep it afloat.

Fund­ing was in no way geared to­wards aid­ing black en­trepreneurs in a prov­ince in dire need of eco­nomic stim­u­lus. This was sim­ply co-or­di­nated theft, with ex­ec­u­tives buy­ing the po­lit­i­cal cover that is so read­ily avail­able these days.

When the Bank took ac­tion, the loud­est protest was from Malema

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