Cogta, Reserve Bank and Treasury in a pickle over municipal investments with VBS

The South African Reserve Bank (Sarb) has announced that it ordered municipalities to withdraw investments with VBS Mutual Bank because this violated the Public Finance Management Act (PFMA), and this has raised more questions authorities appear indifferent to providing definitive answers to.

In the wake of the information that the withdrawals triggered a liquidity crisis for the bank, as some local authorities are understood to have requested deposits in excess of R1.5 billion, The Citizen sought to find out which municipalities had invested.

Another concern was whether local authorities sought and obtained permission from oversight departments to invest and exactly how much was invested. To put it simply, these questions remain unanswered.

The only substantive answer received so far comes from Jabulani Sikhakhane, the divisional head of communications at Sarb, albeit with a note that the questions, together with a query on how much is likely to be recovered, should all be referred to National Treasury.

READ MORE: SARB places VBS Mutual Bank under curatorship

“As explained by deputy governor and the registrar of banks, Kuben Naidoo, at yesterday’s media briefing, VBS Mutual Bank submitted its application for a commercial banking licence on the 26^th of February 2018. It takes 12-18 months to process a banking licence application, depending on the quality of information that the applicant supplies to the registrar,” said Sikhakhane.

When approached for comment, Treasury’s media department wrote: “The Sarb may be best placed to respond to the details in this question since most of this was addressed during Sarb press briefing yesterday.”

When notified that Sarb had already deferred the queries to Treasury, Treasury requested more time to consult internally, and came back with this response: “With regard to your query on VBS: National Treasury is currently having ongoing discussions with the relevant parties, as well as meeting with affected municipalities within, and therefore are unable to provide further details at this time.”

The department of cooperative and traditional affairs (Cogta), a line-function department responsible for municipalities, was asked if it knew which municipalities made these investments, if permission was sought and whether this was an attempt at fiscal dumping.

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“This question is for National Treasury, management of the PFMA Act is not ours. The instruction to municipalities to stop investing in VBS came from National Treasury. This question when in Parliament, even our Minister did not respond to it,” wrote Legadima Leso, head of communications at Cogta.

The Citizen is awaiting a response from Leso after he was afforded an opportunity to answer queries directly related to his department’s oversight role in municipalities’ financial management in terms of the Municipal Systems Act.

In a media statement issued by Public Investment Corporation (PIC), head of corporate affairs Deon Botha said the PIC “is one of the shareholders in VBS, holding approximately 27% equity interest of the mutual bank”, and that it “will work closely with the appointed curator, SizweNtsalubaGobodo, and all other stakeholders, to assist the bank to navigate through this difficult situation and hopefully emerge much stronger”.

It has been reported that Vele Investments, which owns a 58% stake in VBS mutual bank, filed court papers in the North Gauteng High Court in an application to have the curatorship status designated by Treasury set aside.

VBS curatorship ‘shouldn’t have been first intervention’