The failure of small black-owned VBS Mutual Bank has been turned into a platform for groups such as the EFF and Progressive Professionals Forum to launch yet another attack on the Reserve Bank’s supposed "white monopoly capital" bias, with the Black Business Council joining the fray to complain, rather bizarrely, that it was not consulted on the decision to put VBS Mutual into curatorship.
These are difficult and delicate times in the court of public opinion, and the curatorship comes while nationalising the Reserve Bank is still a live issue politically speaking and when there is still discomfort about the dominant position of SA’s big banks. It suggests that the racial dynamics around VBS merit careful handling. And the best way to handle these is simply to make the facts of the matter clear — and keep making them clear.
For the facts are quite simply that VBS got into trouble, as other small (sometimes white-owned) South African banks have done before it, because it was too greedy for growth and it took much more risk than it should have to keep growing. It continued to do so after being warned by the banking regulator that its business model was too risky.
Former president Jacob Zuma’s R7.8m home loan is the best known of its loans, but it also seems to have done much lending to tenderpreneurs and others in the former homelands
When the Reserve Bank put VBS under curatorship on Sunday, it was doing exactly what a banking regulator should do to ensure that depositors in a failed bank are treated fairly and equitably and that the bank has the best possible chance of surviving in some form. VBS has thousands of depositors, large and small, whose money needs to be protected to the fullest extent possible. Protecting them is a primary task for any banking regulator and, as the Reserve Bank’s leadership said, it will regulate all banks in terms of the legislation regardless of their colour.
There was no alternative after VBS’s shareholders — the largest of which are the Public Investment Corporation, Vele Investments and Dyambeu Investments — apparently declined to inject more money into VBS. Its misery goes back months and is the product of the bank’s business model, under which it ramped up its balance sheet from R350m three years ago to more than R2bn by illegally taking in large deposits from municipalities to fund its lending growth. Former president Jacob Zuma’s R7.8m home loan is the best known of its loans, but it also seems to have done much lending to tenderpreneurs and others in the former homelands.
The back story clearly involves political connections and the political cover it enjoyed in the Zuma era. That may have made it difficult for the Treasury and the Reserve Bank to rein in VBS’s risky habits in 2017.
The core of the problem with the VBS banking model was that it depended heavily on a limited number of large municipal deposits that were short term and could easily be withdrawn simultaneously but were being used to fund illiquid longer-term loans. The danger was that it wouldn’t be able to pay out municipalities when they called in their deposits, and that is exactly what began to happen in the run-up to the curatorship, which was triggered when VBS couldn’t pay municipalities what it owed them.
This was not about black or white. It was about banking, and dodgy banking at that. Once the curator has stabilised VBS, the Reserve Bank should urgently institute a forensic investigation to probe what happened. If there was criminal behaviour, action against those involved must be taken.
SA’s big banks are transforming and appointing more black people to top management. That’s crucial to the fortunes of the sector. But it is important too that SA does what it can to introduce more smaller banks, including black-owned banks, into the system to bring more dynamism and competition. The challenge is to ensure they can be sound and sustainable.
SA has a decent record of getting banks, such as African Bank, out of curatorship, so we can but hope that depositors’ losses are not too large.