Municipalities to lose big after depositing millions in VBS mutual bank

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The Reserve Bank’s deputy governor says the possibility of salvaging the bank has dropped significantly since it was placed under curatorship.

Municipalities are likely to lose significant amounts of money they invested in the Venda-based mutual bank, VBS, and the possibility of salvaging the bank has dropped significantly since it was placed under curatorship, MPs heard on Wednesday.
 
Briefing Parliament’s standing committee on finance, South African Reserve Bank (Sarb) deputy governor Kuben Naidoo said since the bank was placed under curatorship in March, the annual financial statements of VBS were found to be inaccurate and the possibility of fake deposits uncovered. A forensic probe is being conducted to check whether any fraud was committed.
 
“Following two months of curatorship and preliminary investigations, the probability of salvaging the bank is lower,” Naidoo said.
 
“The curatorship is ongoing. We have every intention to continue with the curatorship to protect deposits…”
 
Naidoo said while Sarb would guarantee deposits for R50 000 and less, several municipalities that deposited huge amounts of money in the bank, in contravention of the Municipal Finance Management Act, would lose on their “investment”.
 
“It’s likely municipalities will lose a significant portion of the money they invested in the bank.”
 
Naidoo said even in an optimistic scenario, it would take around seven to ten years to recover all the money owed to depositors.
 
He said the law prevented the Reserve Bank from making VBS an unsecured loan.
 
“To date, we are not able to establish the veracity of their assets, their loans for us to determine whether there’s adequate security for us to put money in.”
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