Almost four years after African Bank was placed under curatorship, another bank has followed suit.
VBS Mutual Bank established in 1982, was placed under curatorship from 5pm CAT on Sunday.
The bank which is registered with the South African Reserve Bank (SARB) as a mutual bank shot to fame after providing a loan to South Africa’s former President Jacob Zuma for Nkandla.
SizweNtsalubaGobodo will be the curator of VBS Mutual Bank and will be represented by Anoosh Rooplal.
The Reserve Bank has guaranteed retail deposits amounting to R50 000 per depositor and said VBS remains open for business. According to SARB “the curator will ensure that all loans due are collected as part of the normal collections processes, but also importantly that lending and transactional banking services continue”.
VBS’s main clientele comes from Limpopo. It has 22 051 deposit and 1 105 loan accounts.
The bank has no bondholders. Only instruments qualifying as primary equity.
The decision to place VBS under curatorship was taken due to its increasing liquidity challenges over the last 18 months emanating from a failure of the board of directors and executive management to manage the mutual bank’s rapid growth and the funding of its liquidity, SARB revealed at a press conference held at its headquarters.
In a statement read to journalists at the conference, Reserve Bank Governor Lesetja Kganyago, dressed casually, said “the liquidity challenges emanated from the concentration of deposits from municipalities and was exacerbated by the termination of other sizeable deposits and the inability to source sufficient funding timeously. It was highly risky for VBS to take sizeable municipal deposits that were short-term and lend them long term.”
It was also in breach of the Banks Act which forbids mutual banks from taking deposits from municipalities, only commercial banks can, revealed Kganyago. The breach was picked up 18 months ago and despite warnings for SARB – VBS continued to take deposits from municipalities. Only on the 26th February did it decide to apply for a commercial bank licence, a process that could take between 12-18 months.
Three years ago, when VBS started accepting deposits from municipalities, it had a balance sheet of about R200 million. This rapidly grew to R2 billion.
The liquidity challenges faced by VBS made it difficult for it to settle obligations in the National Payments System on several occasions. This came to a head on the 16th February when the bank failed to honour its obligation. At this point SARB started engaging with VBS and its two largest two shareholders (the Public Investment Corporation and Vele) on a way forward, after an exhaustive process no solution was found and the decision was taken to place VBS under curatorship, says Kganyago.
Kganyago said banks are placed under curatorship if you believe it might be salvageable and to prevent a run on the bank.
According to National Treasury the aim of curatorship is ultimately to turn the mutual bank around and nurse it back to health. “This is in contrast with liquidation, where the mutual bank is closed down”. Treasury cites African Bank as an example of a bank which emerged stronger after curatorship.
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