Stymied by the rules

A rise in loans and advances in defiance of regulation caused liquidity problems, even as capital reserves remain stagnant

VBS Mutual Bank’s curatorship — SA’S second bank curatorship in fewer than four years — has ruffled a few feathers. Some people are crying foul, saying the bank is being victimised for the R7.8m loan it granted former president Jacob Zuma in 2016 to repay the state for upgrades to his Nkandla homestead. But the bank’s financial statements make for instructive reading.

At the heart of its challenges is an asset-liability mismatch: it was accepting short-term deposits from municipalities — unlawful in any event in terms of the Municipal Finance Management Act — and lending these funds out over the long term in the form of home and vehicle loans.

All commercial banks do this in some shape or form. If Absa, FNB, Nedbank or Standard Bank customers all decided to withdraw their deposits tomorrow, the banks would not be able to find the money to repay them. But these institutions have millions of customers and a variety of funding lines, which mitigates the risks.

However, the bulk of VBS’S deposits come from just 21 municipalities. The amounts average between R50m and R100m, says Reserve Bank deputy governor and registrar of banks Kuben Naidoo.

As these deposits matured or were terminated, VBS quickly ran into a cash-flow crisis.

The trouble seems to have been caused by rampant growth in the bank’s balance sheet, which doubled in size over the 12 months to March