ANALYSIS: Did poor people lose money in VBS bank’s collapse?

It’s almost a year since the release of investigator advocate Terry Motau’s report on the large-scale looting of VBS Mutual Bank in October 2018, but the debate about who the victims are has not been settled.

“This was not a victimless crime. There were victims, and they are poor,” Kuben Naidoo, the deputy governor of the South African reserve bank, said in the weeks after the release of the report, titled “The Great Bank Heist”.

But there is a different view – that poor people did not lose money because retail depositors with savings of up to R100,000 got their money back.

Sentletse Diakanyo – whose Twitter bio previously described him as “self-appointed… Supreme Commander of the Twitter battalion” of the Economic Freedom Fighters (EFF) party – has tweeted more than once that “no poor person lost money at VBS” to his more than 100,000 followers.

In October 2018, finance minister Tito Mboweni made a similar statement in parliament: “The poor depositors in VBS have not lost any money.”

Is the claim accurate?

It’s easier to say whether each retail depositor got up to R100,000 of their money back.

In March 2018, then minister of finance Nhlanhla Nene placed VBS under curatorship. This meant that management and the board were relieved of their powers and a curator took over the bank’s affairs.

“Through curatorship, the [reserve bank] is given the legal means to create the necessary mechanisms to implement a resolution plan in order to stabilise and restore a bank,” Anoosh Rooplal, the former curator and current liquidator of VBS, told Africa Check.

Four months later, the reserve bank announced that the government would provide the funds to pay VBS retail depositors (individuals, burial societies, stokvels and savings clubs) up to R100,000 of their lost money.

Rooplal, a director at financial services group SNG Grant Thornton advisory services, said 17,736 accounts were transferred to Nedbank, which was tasked with repaying the money.

But some depositors could not get their money. “Those depositors whose ID numbers were incorrect and those who did not provide Fica [Financial Intelligence Centre Act] documents were not transferred to Nedbank and are therefore unable to access their monies.”

At the start of January 2019, 511 depositors with a combined balance of about R3 million were affected. The number had dropped to 443 depositors by the end of June.

Rooplal said these people would be able to access their money once Fica documents and the correct information was provided.

No guarantee for deposit amounts over R100,000

Those with retail deposits of more than R100,000 need to get in line with corporate depositors, municipalities and creditors once the bank’s assets have been recovered.

“The liquidator’s role, as has been the case with the curator, is to recover as much [as possible] of the assets that have been stolen,” said Rooplal. “This will then be for the benefit of all creditors and depositors. All of these creditors and depositors will rank/share equally in the recovered assets.”

Of the 564 retail depositors who had VBS accounts of more than R100,000, a total of 314 were groups (burial societies, stokvels and savings clubs).

The reserve bank has said these depositors “may receive a portion of their amounts above R100,000 in future” but added that it was “not certain nor guaranteed”.

Rooplal said it was too early in the recovery process to determine how big this portion might be. “We are currently not sure as to how long the liquidation process will take, but this can generally be a lengthy process and in some cases can take a number of years.”

Who is poor?

In the discussion following his initial tweet, Diakanyo argued that “no poor person would have savings of over R100k”.

But there is no information on the income and spending of people who were contributing to groups with deposits over R100,000. So it’s not possible to say whether they are poor or not.

Said Rooplal: “We don’t have the information. Banks will only do affordability checks [and so forth] when credit is granted to customers. In these circumstances, the bank will then obtain income, expenditure and other related information… This type of information is not collated from depositors.”

A person’s ability to deposit money with a bank or contribute to a savings club, stokvel or burial society was not an indication of whether they were poor or not, said Isobel Frye, director of the Studies in Poverty and Inequality Institute (SPII).

“Anecdotally, even grant recipients contribute to stokvels and burial societies.”

She said the definition of poverty was “exceedingly contested”.

In South Africa, there are three poverty lines. The lowest, the food poverty line (R547 per person per month), is based on the number of calories a person needs each day to survive. Then there is the lower-bound poverty line (R785 per person per month) and the upper-bound poverty line (R1,183 per person per month).

SPII and its partners have developed a Decent Standard of Living measure, based on 21 items, research has shown to be essential for an acceptable standard of living such as having access to electricity from the grid and “regular savings for emergencies”. The income level required is R7,043 per person per month.

Conclusion

We can’t say how many poor people lost money from the looting of VBS. The liquidation process is still underway and it is unknown which of the depositors are poor, according to the official definition of poverty.

What we do know is that some of the depositors have not been able to access their money. Again, we don’t know how many of them are poor or if all of them will eventually be able to retrieve their money.

The bigger picture is that everyone in the country contributed to the government guarantee, which was funded by taxpayers. “All South Africans, rich and poor, pay tax in some form,” the national treasury told Africa Check.

Do poor people save?

Statistics South Africa collects savings data through its Living Conditions Survey. The agency’s director for poverty and inequality statistics, Patricia Koka, said that while there was evidence that poor people – those living below the upper-bound poverty line – saved, it was important to keep in mind that savings data “is by nature sensitive, complex and interpreted differently by households”.

An example would be when one household provides an amount they think they will get at the maturity date of a policy while another provides the value of its contributions. “The same applies to stokvels [and so forth],” said Koka.

Another problem in surveys is that the person interviewed might not be familiar with the household’s savings information. Or they don’t want to divulge this information because it is a “sensitive question”.

Bearing the limitations of the data in mind, the values provided by households living below the upper-bound poverty line for contributions to stokvels in 2015 (the latest available data) ranged from R98 to R71,558. For 12-month savings deposits, the range is R81 to R290,017.

The information about contributions to stokvels applies to 2.8 million poor households and the 12-month savings data to 1.2 million households, according to data provided to Africa Check by Stats SA.

The average spending on contributions to stokvels was R513 per household. For the 12-month savings deposit, it was R153.

This report was written by Africa Check, a non-partisan fact-checking organisation. View the original piece on their website.

For more news your way, download The Citizen’s app for iOS and Android.