Deputy governor of the Reserve Bank, Kuben Naidoo, ahead of giving evidence during the judicial commission of inquiry into the Public Investment Corporation on April 02 2019 in Pretoria, South Africa. Picture: GALLO IMAGES/PHILL MAKAGOE
Deputy governor of the Reserve Bank, Kuben Naidoo, ahead of giving evidence during the judicial commission of inquiry into the Public Investment Corporation on April 02 2019 in Pretoria, South Africa. Picture: GALLO IMAGES/PHILL MAKAGOE

Deputy Reserve Bank Governor Kuben Naidoo appeared before the Public Investment Corporation (PIC) inquiry on Tuesday to set the record straight about the involvement of the PIC’s executives in the demise of VBS Mutual Bank.

A damning report by investigators appointed by the Reserve Bank released in October detailed looting at VBS bank of nearly R2bn, and identified the role of political players from the ANC and the EFF. The bank is now undergoing a liquidation process.

The PIC was a shareholder in VBS bank and had lent it R350m as part of a revolving credit facility. Testimony at the inquiry on Monday from current and former executives of the PIC described how two clauses in relation to the revolving credit facility mysteriously appeared in the loan documents. Both weakened the terms for the state-owned asset manager.

As part of its shareholding, the PIC appointed its head of risk, Paul Magula, and its head of legal, Ernest Nesane, to the board of VBS Mutual Bank.

“In light of Mr Magula’s statement and evidence to the commission and which I understand, from media reports, included references to VBS, I believe that it is necessary and appropriate that the commission be provided with the transcript of Mr Magula’s formal interview obtained as part of the investigation undertaken by the investigator into VBS,” Naidoo testified. 

He requested that, given the ongoing criminal investigation, the transcript remained confidential.

Naidoo then read into the record various extracts of the report's findings of into the collapse of VBS.

In relation to Magula, this included how he used two front companies to receive “gratuitous payments” of R7.6m “to buy his silence”. The report further described how Magula, after initially putting up strenuous denials, eventually confessed that he had received unlawful payments.

This contrasts sharply from Magula’s testimony at the PIC inquiry, where he said:  “As a former board member of VBS Mutual Bank representing the PIC, I take responsibility that what happened at the bank was wrong, but also there is no way I could have known what was happening beyond the misrepresentation made to the board through audit reports that were presented to me as a board member, and also as an executive head of risk within the PIC.” 

When asked about the progress of the investigation, Naidoo said: “We have submitted a formal criminal complaint is submitted to the Hawks, which is being investigated by the police, the Hawks and the National Prosecuting Authority.”

The report into the collapse of VBS bank also found that a former KPMG partner had signed off falsified audits.

Naidoo said they were “duped by the auditors.” 

“In hindsight we should rely less on audited accounts and have secondary checks on these smaller banks. In another sense the PIC had two members on the board and they were silent. They had a fiduciary responsibility to the company.”

thompsonw@businesslive.co.za