PIC ex­ec­u­tive quits over VBS

Sunday Times - - Business Times - By PERICLES ANETOS

● An­other head has rolled at the Pub­lic In­vest­ment Cor­po­ra­tion (PIC) as a re­sult of the VBS scan­dal, this time that of the ex­ec­u­tive head for le­gal coun­sel, gov­er­nance and com­pli­ance, Ernest Ne­sane, who re­signed on Fri­day with im­me­di­ate ef­fect

The PIC said in a state­ment it was “made aware of se­ri­ous al­le­ga­tions of im­pro­pri­ety” against Ne­sane af­ter he had tes­ti­fied be­fore the foren­sic in­ves­ti­ga­tion into VBS Mu­tual Bank ear­lier this week.

Ne­sane was one of two PICap­pointed direc­tors on the board of VBS Bank un­til it was placed un­der cu­ra­tor­ship by the Re­serve Bank in March. The PIC owns about 25% of VBS, which came in the spot­light last year when it gave for­mer pres­i­dent Ja­cob Zuma a R7.8-mil­lion loan to pay his Nkandla debt.

But the bank’s prob­lems date as far back as 2015, when it took R1.5-bil­lion in de­posits from 14 mu­nic­i­pal­i­ties, deep­en­ing its liq­uid­ity

PIC made aware of se­ri­ous al­le­ga­tions of im­pro­pri­ety

cri­sis. De­spite the Re­serve Bank is­su­ing con­cerns over the mat­ter, VBS’s mu­nic­i­pal de­posits grew from R1.06-bil­lion in Septem­ber last year to R1.5-bil­lion in March.

The PIC’s other ap­pointed di­rec­tor, Paul Mag­ula, was dis­missed ear­lier this year af­ter a dis­ci­plinary in­quiry against him in re­la­tion to the per­for­mance of his du­ties.

“The PIC is con­cerned about the devel­op­ments that have come to light since the com­mence­ment of the VBS in­quiry and more so that two of its for­mer em­ploy­ees have been im­pli­cated in im­pro­pri­ety,” the PIC said.

Re­gard­ing claims by a VBS cu­ra­tor that an un­named PIC ex­ec­u­tive re­ceived a R5-mil­lion bribe to fa­cil­i­tate pay­ment of R350-mil­lion to VBS, the PIC said it would in­sti­tute “the ap­pro­pri­ate dis­ci­plinary pro­ceed­ings”, if there was proof of a bribe. —Ad­di­tional re­port­ing by Palesa Vuy­ol­wethu Tshandu

When the then lit­tle-known VBS Mu­tual Bank an­nounced its pres­ence out­side the Venda, Lim­popo, re­gion with a rather ridicu­lous R7-mil­lion loan to a 74-year-old politi­cian, for­mer pres­i­dent Ja­cob Zuma, it should have be­come ob­vi­ous that its pro­cesses were in need of closer scru­tiny. Even more so when that loan was twice its an­nual net profit for that past fi­nan­cial year. Very few lenders of any cred­i­bil­ity would have ap­proved such a loan, no mat­ter the re­la­tion­ship — and in this case with an out­go­ing pres­i­dent. How does a pen­sioner — and for­mer pub­lic ser­vant at that — ser­vice a debt that roughly trans­lates to a monthly bill of more than R70 000 a month for a pe­riod of 20 years, and that’s just my rough cal­cu­la­tion? A high-street lender would find it hard to jus­tify.

But the fun­da­men­tal is­sue with VBS was that it was sup­posed to be a mu­tual bank. Risk­ing about R7mil­lion on a sin­gle in­di­vid­ual should have raised alarm bells with reg­u­la­tors and posed ques­tions about the av­er­age loan size for a home loan at the bank.

Mu­tual banks are nor­mally small, what some may call a larger ver­sion of a stokvel. Such banks en­cour­age peo­ple to save so that they earn good in­ter­est back. For a

“stokvel” to grant some­one a loan as large as the one given to the for­mer pres­i­dent was prob­lem­atic and, in bank­ing lingo, “not pru­den­tial”.

For that amount of money, the bank could have given seven peo­ple from Venda about a mil­lion rand, and with that money these peo­ple could have built their man­sions or in­vested in their busi­nesses and in so do­ing pro­vided some much-needed spend in an area of the Lim­popo prov­ince that is among the poor­est in the coun­try.

For all the de­fend­ers of the bank who have called at­tacks on it an at­tack on a “black” bank, such lend­ing ac­tiv­ity may have some cre­dence. But R7-mil­lion on one per­son for such a small lender doesn’t fit that billing. Given what we’ve found out about the lender in re­cent weeks and months, it was clearly just the tip of the iceberg.

The cap­i­tal af­forded to the for­mer pres­i­dent and myr­iad other busi­ness­men who have ben­e­fited from VBS’s mal­ad­min­is­tra­tion would have been bet­ter served if it had been in­vested in Venda. The tra­di­tional big banks aren’t dish­ing out those amounts of cap­i­tal in such ar­eas in the coun­try.

Be­yond the eco­nomic spinoffs of fol­low­ing a more pru­dent ap­proach rather than loan­ing R7-mil­lion to a politi­cian who is now fac­ing huge le­gal bills at some point in his fu­ture, the bank would have at least spread its risk. Pru­dent.

In­stead of behaving like a mu­tual bank that adds value to de­pos­i­tors, VBS, in grant­ing the for­mer pres­i­dent a loan, be­haved much like a typ­i­cal bank and one with­out a func­tion­ing credit com­mit­tee, a cor­ner­stone of any bank­ing ac­tiv­ity.

So just how did the lender ex­pect, and still ex­pect, the for­mer pres­i­dent to ser­vice a R7-mil­lion debt? This is espe­cially the case as the bor­rower in ques­tion was serv­ing out his fi­nal term in of­fice as both party and coun­try pres­i­dent. It hap­pened for one of two rea­sons — the watch­dog was asleep at the wheel, or the po­lit­i­cal cli­mate dic­tated that they adopt a wait-and-see ap­proach. I’m with the lat­ter, that’s the only way I can ex­plain why reg­u­la­tors left VBS and its ex­ec­u­tives to their dodgy prac­tices.

Ev­ery­one had their eye on the ANC elec­tive con­fer­ence in De­cem­ber and in so do­ing the rot con­tin­ued to grow at VBS, as it was at state-owned en­ter­prises. By af­ford­ing the for­mer pres­i­dent his loan, the ex­ec­u­tives bought cover for their prac­tices.

One won­ders what would have hap­pened had the De­cem­ber con­fer­ence not played out the way it did. Would po­lit­i­cal con­ver­sa­tions be about sav­ing the bank and ex­cus­ing the ex­ec­u­tives who had caused its col­lapse? Would it be yet an­other in­sti­tu­tion left to the Trea­sury to sort out? A bul­let was dodged at the tail end of last year; let’s hope lessons were learnt so that we don’t have to dodge it again.

It should have been ob­vi­ous its pro­cesses needed closer scru­tiny

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