VBS bank put under curatorship
THE SA Reserve Bank has put tiny VBS Mutual Bank under curatorship, with the bank running into severe liquidity trouble after it failed to act on repeated warnings that its dependence on unlawful municipal deposits put it at risk.
The black-owned mutual bank, which is best known for the R7.8-million home loan it granted former president Jacob Zuma last year, had continued to take deposits from municipalities, even after the Treasury warned six municipalities in August that it was illegal in terms of the Municipal Finance Management Act for them to bank with mutual banks, which have a more limited licence than commercial banks, which have a full banking licence.
The Treasury’s warnings prompted some municipalities to pull their money from VBS, which by the middle of last month was facing a run on its deposits so that it no longer had enough cash to meet its payment obligations.
That triggered the Reserve Bank’s decision yesterday to put it into curatorship.
Reserve Bank deputy governor Kuben Naidoo, who is also the registrar of banks, said last night that the Reserve Bank had approached VBS’s two largest shareholders about a possible rescue plan to manage the liquidity situation, but after engaging extensively with the management, the VBS board and shareholders, it did not see any solution other than curatorship.
Sizwe Ntsaluba Gobodo director Anoosh Rooplal was appointed curator, taking over management of the bank, which will continue to transact and collect on its loans, though deposits will be frozen, except for those of retail depositors under R50 000, which are guaranteed
This is the first curatorship in South Africa since the Reserve Bank put African Bank under curatorship in August 2014 after a run on that bank’s money-market funds, which threatened to put the country’s banking system at risk.
However, unlike African Bank, which had a R50-billion balance sheet, VBS is not deemed to be systemically significant at all, with a balance sheet of just more than R2-billion.
This has grown very rapidly from R150-million three years ago, with the bank using mostly short-term municipal deposits to support rapid growth in its lending book, much of which is in longer-term home loans, particularly in rural areas, with VBS also lending to small businesses. Naidoo said the Reserve Bank had repeatedly warned VBS over the past 18 months that it needed to review its business model and reduce its dependence on such large, short-term deposits.
Though VBS said last year it was applying for a full banking licence, Naidoo said its application was only submitted on February 26.
The Reserve Bank has come under fire from VBS chairman Tshifhiwa Matodzi, who accused Naidoo in a letter on Friday of targeting the bank because it was successfully owned and managed by black people.
“In the end, we were faced with a well-organised and powerful system, which does not tolerate growing black banks and black excellence,” he wrote.
But Reserve Bank governor Lesetja Kganyago said the Reserve Bank regulated banks, in the interests of depositors and the stability of the banking system, and “whether you are black, white, pink or yellow, if you have a banking licence you shall be supervised in terms of the banking legislation”.