PIC cash used by VBS as a slush fund

Business Day - - FRONT PAGE - Carol Pa­ton Writer at Large

A R350m credit fa­cil­ity that the Pub­lic In­vest­ment Cor­po­ra­tion (PIC) ex­tended to VBS Bank in 2015 was used to hand out spe­cial “loans” to clients that were not mon­i­tored for re­pay­ment.

Of­fi­cials at the bank also cre­ated fake loan ap­pli­ca­tions us­ing the in­for­ma­tion of ex­ist­ing clients to jus­tify draw­ing down on the PIC funds, which were then used to plug the grow­ing cash hole in VBS.

The de­tails of the de­fraud­ing of the PIC form part of the re­port by ad­vo­cate Terry Mo­tau into the col­lapse of VBS com­mis­sioned by the SA Re­serve Bank and pub­lished on Wed­nes­day.

Mo­tau’s re­port re­vealed bla­tant theft by ex­ec­u­tives and gra­tu­itous pay­ments made to a range of po­lit­i­cally con­nected in­di­vid­u­als. The PIC’s R350m credit fa­cil­ity was used by VBS to fund its “con­tract fi­nance” book.

About 90% of the loans on the “con­tract fi­nance” book were non­per­form­ing, VBS ex­ec­u­tives told the in­ves­ti­ga­tion.

The con­tract fi­nance book was kept on an Ex­cel spread­sheet and never in­te­grated into the bank’s oper­at­ing sys­tem, mak­ing it easy to ma­nip­u­late.

The PIC, which in­vests R2tril­lion in funds on be­half of gov­ern­ment pen­sion and other so­cial funds and is the con­ti­nent’s big­gest as­set man­ager, owns 26% of VBS through its big­gest client, the Gov­ern­ment Em­ploy­ees Pen­sion Fund (GEPF).

The GEPF in­her­ited its share­hold­ing in VBS when it ab­sorbed the pen­sion fund of the Venda ban­tus­tan gov­ern­ment.

The PIC sub­se­quently put new cap­i­tal into the bank in 2002, and in 2015 pro­vided a fur­ther R350m credit fa­cil­ity.

The PIC was con­sid­er­ing a re­quest for fur­ther fund­ing of R2bn when VBS col­lapsed.

The cash it pro­vided in 2015 ap­pears to have been passed di­rectly on to VBS clients in loans that were not sub­ject to “nor­mal credit grant­ing pro­ce­dures” or used as a slush fund by bank ex­ec­u­tives.

Mo­tau says “it was very plain to me that con­tract fi­nanc­ing was a prime lo­ca­tion of the loot­ing of the funds from VBS”.

The CEO of VBS, Andile Ra­mavhunga, told in­ves­ti­ga­tors that dif­fer­ent rules ap­plied to the con­tract fi­nance book be­cause it was “off bal­ancesheet” fund­ing and had been ring-fenced and pro­vided by the PIC for that pur­pose.

Mo­tau re­jected this ex­pla­na­tion, which he said was in the “realms of ab­sur­dity”.

Few, if any, loans in the book were ser­viced. The CFO of VBS, Philip Truter, tes­ti­fied that

“80% to 90% of the con­tract fi­nance book should have been im­paired on the ba­sis of non­per­for­mance”.

In­stead, fal­si­fied fi­nan­cial state­ments showed that only a small por­tion of loans – less than 1% – were im­paired.

CLIENT SIG­NA­TURES

VBS of­fi­cials cre­ated fake loan ap­pli­ca­tions by copy­ing and past­ing client sig­na­tures and de­tails from ex­ist­ing loans to new ad­denda, which could then be used to draw down more funds. The re­port says the draw­downs were used to “im­prove VBS’s liq­uid­ity po­si­tion”.

The same of­fi­cials cre­ated en­tirely fake loans in the con­tract book in or­der to in­flate VBS’s earn­ings.

Two PIC rep­re­sen­ta­tives on the VBS board, Paul Mag­ula and Ernest Ne­sane, con­fessed to the in­ves­ti­ga­tors that they had turned a blind eye to the fraud in re­turn for large pay­ments.

Both re­ceived more than R7m in gra­tu­itous pay­ments, which Mo­tau says were “buy­ing si­lence from those who could speak the truth”.

The two have since left the PIC, which is pur­su­ing crim­i­nal charges against them and has had them dis­barred from pro­fes­sional or­gan­i­sa­tions.

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