Sarb to hold briefing on VBS Mutual Bank

Andile Ramavhunga CEO of VBS

Finance Minister Nhlanhla Nene had approved the recommendation of the Registrar of Banks to place VBS Mutual Bank under curatorship to nurse the bank back to health, the Treasury said in a statement after Kganyago's announcement. This resulted in a number of councils withdrawing more than R1bn from the bank, causing a serious liquidity crisis.

But deputy Governor Kuben Naidoo says this is not true. "After an exhaustive process of engaging with the board, management and shareholders, there was no other solution besides curatorship", he said. This is the first curatorship in SA since the Bank put African Bank under curatorship in August 2014 after a run on that bank's money-market funds, which threatened to put SA's banking system at risk.

Treasury said the aim of the curatorship is ultimately to turn the mutual bank around.

The curator was given the legal means to create the necessary mechanisms to implement a resolution plan which would ensure the long-run sustainability of VBS. "The recent example of African Bank which emerged as a stronger bank after curatorship should be noted", said Treasury.

Treasury explained that restricting municipalities from investing in mutual banks is consistent with ensuring municipal funds are managed responsibly.

VBS was a small bank with a book of only R1.2bn until past year when it suddenly grew to R2.4bn as many municipalities were successfully lobbied to place deposits of R1.5bn in VBS 18 months ago.

One of the issues is that VBS took short-term municipal deposits and lent them long term.

Treasury said being highly regulated entities, all banks need to not only set aside large capital reserves, but take care not to break the law in all their activities, and fully comply with laws like the Public Finance Management Act, Municipal Finance Management Act (MFMA) and Financial Intelligence Centre (FIC) Act.

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He said the problems stemmed from it taking sizeable deposits from municipalities that were short term and then making long-term loans from this risky base. This would ultimately lead to liquidity problems. The Treasury would engage with affected municipalities to determine the extent of their potential loss and ensure that service delivery was not affected.

"In the past few weeks, National Treasury and the Reserve Bank have been working closely to try and save the bank so as to protect ordinary depositors".

As VBS Mutual Bank makes headlines after the Reserve Bank placed it under curatorship on Sunday, here is what you need to know.

The EFF and the PAC have also called it an attack on black-owned banks, saying this would not be an issue if the shareholders were white.

"The colour of money is red, it is green, yellow, it's blue".

When Capitec was reported to have engaged in unacceptable financial conduct, the Reserve Bank was quick to act and assure the markets and depositories because Capitec is owned by white people.

Following the briefing on Sunday, Treasury issued a statement indicating that curatorship is a better option than liquidation.

Cosatu said Sarb's decision is a "sharp reminder that the Reserve Bank as an institution has no appetite to see the financial sector transformed and that its lack of accountability remains poisonous for poor people and black businesses".

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