VBS Mutual Bank: how did we get here?
As VBS Mutual Bank makes headlines after the Reserve Bank placed it under curatorship on Sunday, here is what you need to know.
1. What happened on Sunday night?
Reserve Bank governor Lesetja Kganyago placed Venda-based VBS Mutual Bank under curatorship. 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. The Reserve Bank places a bank in curatorship to protect depositors and take risk out of the financial system.
2. Okay, but what is VBS?
The bank was established in 1982 and initially operated as the Venda Building Society. It received a permanent mutual bank licence on October 11 2000 and currently has about 30,000 clients.
3. What is a mutual bank?
Mutual banks are very different to commercial banks as they follow the Mutual Banks Act as opposed to the Banks Act. They tend to be smaller than commercial banks; some types of deposits in mutual banks qualify as an ownership stake in the bank; and they are not regulated to the same standard — commercial banks must comply with Basel 3, and the attendant 1,200 pages of regulations.
4. So how did VBS grow?
VBS was a small bank with a book of only R1.2bn until last 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.
5. Didn’t something else happen 18 months ago?
The loan to Jacob Zuma: In 2016 VBS provided a home loan to the former president equal to R7.8m. This was highly risky as it meant that it made such an enormous loan to one client not known to be creditworthy.
6. Who else banks with VBS?
VBS clients are mainly small local businesses and stokvels. About three years ago, VBS started lobbying municipalities to place their deposits with the bank. The municipalities that did so came from the North West, Limpopo and the Free State.
7. So, what happened?
Last year, the National Treasury instructed municipalities to stop sending deposits to the bank due to a stipulation in the Municipal Finance Management Act that requires that they must deposit their money only with a fully registered bank. This resulted in a number of councils withdrawing more than R1bn from the bank, causing a serious liquidity crisis.
8. Why can’t municipalities bank with VBS?
The rationale for restricting municipalities and their entities from placing funds into mutual banks is consistent with the objective of ensuring that funds meant for service delivery are managed as responsibly as possible.
9. Why has the curatorship sparked a debate on race?
VBS chairman Tshifhiwa Matodzi, accused Reserve Bank deputy governor Kuben Naidoo of targeting the bank because it was successfully owned and managed by black people, and for having granted Zuma a loan.
"In the end, we were faced with a well-organised and powerful system, which does not tolerate growing black banks and black excellence," he said.
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.
But Kganyago shut down the argument on Sunday: "Whether you are black, white, pink or yellow, if you have a banking licence you shall be supervised in terms of the banking legislation".
10. Then why did Naidoo have an issue with VBS?
"When municipalities came asking for the money, the bank was not in a position to pay it," said Naidoo.
This happened on February 16, when Reserve Bank monitoring showed VBS had failed to honour a payment obligation on the national payment system.
11. Didn’t VBS apply for a commercial banking licence after the Treasury’s instructions?
VBS applied for a full commercial banking licence only last week. It takes between 12 and 18 months for an application to be processed.
12. So, who will be VBS’s curator?
SizweNtsalubaGobodo director Anoosh Rooplal was appointed the curator of the bank. VBS will continue to transact and collect on its loans, although deposits will be frozen, except for those of retail depositors under R50,000, which are guaranteed. Its planned listing on the JSE has also been placed on hold.
13. How did the Public Investment Corporation (PIC) get involved?
In April 2011 the PIC was persuaded to take an equity stake of 27% in VBS. When a bank fails, shareholders must take the hit. The PIC stands to lose R18m.