The South African Reserve Bank painted a grim picture on Monday that suggests as much as 75% of VBS Mutual Bank’s assets may have been stolen by its executives and directors.
"It’s a travesty that the failure of management put so many depositors at risk," said Bank governor Lesetja Kganyago, at a media conference on the curatorship of VBS.
"Institutions such as banks rely on the governance processes, but when it’s the people responsible for the bank that are the ones perpetrating the crime, no amount of regulation can prevent that," he said.
VBS, which was formed as a building society in the former Venda homeland, came to national prominence in 2016 when it gave former president Jacob Zuma a R7.8m loan after he was ordered to repay the state for upgrades made to his Nkandla home.
The bank’s failure may yet have grave consequences for municipalities in some of the poorest parts of the country, which stand to lose almost all of the R1.6bn they deposited with VBS, increasing the risk of budget shortfalls and violent protests that could result from a lack of service delivery.
Curator Anoosh Rooplal’s timing of the action he instituted on Friday to recover more than R1.5bn from the bank’s largest shareholder, Vele Investments, as well as from the bank’s executives and directors, was done to prevent further "dissipation of assets".
But the amount of money stolen relative to the bank’s total assets is harder to establish, partly because the bank deliberately misled the regulator and also due to problems with the quality of its audit, which led the bank to withdraw its 2017 financial results.
Rooplal did not rule out seeking damages from the bank’s external auditor, KPMG, and the bank’s internal auditor, PwC, when the forensic report is completed towards the end of August.
According to the bank’s last available annual financial statements to end-March 2016, the bank had total assets of just more than R1bn.
By the end of January 2018, according to data provided by VBS to the Reserve Bank, the bank held total assets of R2bn, meaning it had doubled its balance sheet in the space of two years.
When asked what, if any, part of VBS’s loan book was performing, the curator said that the home loan mortgage book of about R400m was behaving consistent with credit extended under arms-length credit agreements.
The performance of the vehicle finance book was mixed, with the curator noting a deterioration in the credit quality in the months leading up to the intervention by the Reserve Bank.
Based on a balance sheet of about R2bn, and with the curator seeking to recover R1.5bn from the "perpetrators of the fraudulent scheme", it seems possible that as much as 75% of the bank’s balance sheet has disappeared.
But there was relief for small depositors, with the Reserve Bank announcing that it has obtained a guarantee of R330m from the Treasury should it fall short in recovering the money owed to them.
The Bank announced last week that retail deposits, which include individuals, burial societies and stokvels, would be guaranteed to a maximum of R100,000 per customer.
This means that 97% of all depositors at the bank will be refunded their entire savings.