Warnings ignored: Tshifhiwa Matodzi, chairman of VBS Mutual Bank, and CEO Andile Ramavhunga. Picture: MDUDUZI NDZINGI
Warnings ignored: Tshifhiwa Matodzi, chairman of VBS Mutual Bank, and CEO Andile Ramavhunga. Picture: MDUDUZI NDZINGI

The situation in which the VBS Mutual Bank finds itself is the result not of malicious persecution of "a black bank" by a regulatory institution hellbent on protecting the establishment, but rather due to the greed and mismanagement of the small bank’s leadership.

On Sunday, the Reserve Bank placed VBS under curatorship — the first time they’ve taken such a drastic step since African Bank was placed under curatorship in 2014.

Banking registrar Kuben Naidoo explained that the problem was that 18 months ago the bank began taking hefty deposits from municipalities, which it then lent out to borrowers. "When the municipalities came asking for that money, the bank wasn’t able to pay," he said. In February, when one of the municipalities wanted the money back, VBS couldn’t repay the funds.

Of course, that’s not how Tshifhiwa Matodzi, who resigned as VBS chairman this week, saw it. Last week, he wrote a letter to Naidoo, saying that it was only after a black board took over in 2012 that the Reserve Bank began raising compliance issues. "We were faced with a well-organised and powerful system, which does not tolerate growing black banks and black excellence," he wrote.

But that’s a disingenuous spin on what happened. The fact is, the way VBS was run was almost the antithesis of prudent banking practice. For years, small mutual banks, which don’t have to comply with the myriad strict rules that govern big commercial banks, have been forbidden from taking deposits from municipalities. The reasoning is simple: if a mutual bank were to crash, taxpayers’ money is at greater risk than it would be at a large commercial institution.

Back in 2016, treasury discovered VBS had been flouting this rule, so it warned the six municipalities to withdraw their deposits.

VBS ignored this rule — which speaks to a deeper truth about why the bank is on the rocks. In early 2016, the bank began an unhealthy dalliance with certain politicians whom it believed could "protect it" from having to comply with the law. It’s a characteristic that gained ground during the Zuma years.

So it wasn’t that surprising that in September 2016, VBS extended a R7.8m loan to former president Jacob Zuma so he could repay some of the money for the upgrades at Nkandla. The loan raised all sorts of red flags, given that the R7.8m exceeded the bank’s annual profit of R4.9m.

Soon after, in 2017, the deposits from municipalities into VBS rose sharply to R1.5bn.

But even if it hadn’t been illegal for VBS to take those municipal deposits (which it was), the fact that such a large proportion of its assets came from just 21 clients was far too much concentration risk. If just one of those clients withdrew their cash, VBS was at risk of failing to meet its obligations. As everyone knows, a bank unable to honour a single withdrawal is a dead bank.

Would the critics, who claim the Reserve Bank is targeting a black bank, really feel confident putting their own cash into a bank that was playing so fast and loose with their savings?

The curators will now be able to shed light on what happened to the cash entrusted to VBS, as well as its governance.

But if there was anything encouraging to emerge from African Bank’s experience, it is that a bank can be nursed back to life from curatorship. In VBS’s case, the curators, SizweGobodoNtsaluba, now have a real chance of putting it back on an even keel under better operators.

So, the new VBS could still be a "black bank" — only with a real prospect of delivering on VBS’s promise of providing banking to the rural unbanked, rather than simply political cronies.