The Democratic Alliance has welcomed the announcement by South African Reserve Bank (SARB) governor Lesetja Kganyago that the VBS Mutual Bank has been placed under curatorship.
“This action was triggered by VBS’s inability to find sufficient funding following National Treasury instructing municipalities to stop investing with the bank and withdraw their funds,” DA spokesman Kevin Mileham said.
Section 7 of the Municipal Finance Management Act (MFMA) stated that a municipality may not open a bank account with an institution not registered in terms of the Banks Act, and mutual banks, such as VBS, were not registered in terms of the Act, he said.
The DA had been concerned for the safety of municipal deposits for some time and therefore submitted a parliamentary question to former finance minister Malusi Gigaba, probing the extent of exposure of municipal deposits with VBS.
Gigaba responded saying that only two municipalities had investments with VBS, as at June 30, 2016. The municipalities being West Rand district municipality and Capricorn district municipality.
“According to governor Kganyago, this has subsequently increased to 21 municipalities and deposits in excess of R1.5 billion. The DA, therefore, supports the actions taken by Treasury and SARB to safeguard the funds of municipalities and other depositors with VBS Mutual Bank,” Mileham said.
During a media briefing in Johannesburg on Sunday afternoon, Kganyago announced that VBS Mutual Bank had been placed under curatorship with immediate effect.
EWN reported Kganyago as having said; “VBS experienced increasing liquidity challenges over the last 18 months. These problems emanated from a failure of the board of directors and executive management to manage the bank’s rapid growth and its funding and liquidity position.”
This had resulted in VBS being placed under intense regulatory scrutiny. “The liquidity challenges emanated from the maturity of a large concentration of deposits from municipalities and was exacerbated by the termination of other sizable deposits and the inability to source sufficient funding timeously.”
He said it was highly risky for the bank to take sizable municipal deposits that were short-term and lend them out long-term. Kganyago dismissed rumours that the bank was being “punished” because it was black-owned, saying all banks were equally monitored, EWN reported.
The bank shot to prominence in 2016 when it lent former president Jacob Zuma R7.8 million to reimburse the state for the non-security upgrades made to his private homestead in Nkandla in KwaZulu-Natal.
Last year, the bank said it was preparing to apply for a full commercial banking licence to continue its upward slide of accumulating assets and posting profits. Established in 1982 and initially operated as Venda Building Society, VBS Mutual Bank received a permanent Mutual Bank License on October 11, 2000 and currently has about 30 000 clients with deposits of around R800 million.
– African News Agency (ANA)