Money and Markets

18 months ago VBS gave Jacob Zuma a loan – and municipal deposits started pouring in. The Reserve Bank just put VBS into curatorship because it could not pay back the money.

Business Insider SA
  • The Reserve Bank has put VBS Mutual Bank under curatorship; it will now be run by SizweNtsalubaGobodo..
  • VBS illegally took deposits from municipalities, the Reserve Bank said – and on 16 February found itself unable to pay what it owed.
  • The municipal money started pouring in exactly at the time VBS extended a loan to then President Jacob Zuma.

Mutual bank VBS has been placed into curatorship, the Reserve Bank announced on Sunday afternoon.

The bank will now be run by consultants SizweNtsalubaGobodo on behalf of the Reserve Bank.

"The SARB [SA Reserve Bank wishes to reassure the public that the South African banking system remains safe, sound, and adequately capitalised," SARB governor Lesetja Kganyago said.

VBS had grown very rapidly in recent years – starting when it extended a loan to then President Jacob Zuma.

According to SARB numbers, VBS had a balance sheet of R150 million three years ago. Today it has R2 billion on its balance sheet. The vast majority of that came from municipalities, which the SARB believes may have had up to R1.5 billion in deposits with VBS at the peak – an influx that suddenly started 18 months ago.

See also: The Reserve Bank may take control of VBS, the bank that bailed Zuma out, as early as this week

NKANDLA, SOUTH AFRICA An overview of the new home for South Africa president Jacob Zuma's in his birth village on October 10, 2012 in KwaNxamalala, Nkandla. Photo by Per-Anders Pettersson

18 months ago is exactly when VBS opened a mortgage for Zuma, which enabled him to repay R7.8 million to the state for taxpayer money spent on his private homestead at Nkandla.

But municipal deposits are a bad source for money to lend for mortgages, deputy SARB governor Kuben Naidoo told a press conference on Sunday.

"If you take a deposit from a municipality... the relatively maturity is likely to be short," said Naidoo; typically municipalities want their money back within no more than 12 months, or some 29 years less than a typical home loan.

"It is quite a risky strategy to take that money and lend it long term," said Naidoo.

"When municipalities came asking for the money, the bank was not in a position to pay it."

That quite literally happened on 16 February, when Reserve Bank monitoring showedVBS had failed to honour a payment obligation on the national payment system.

The SARB went to VBS and "essentially they said that some municipalities want their deposits back, and we don’t have any money to give it to them," Naidoo said.

Municipalities apparently started asking for their money back after the national treasury informed them that making deposits with VBS was illegal – for both the municipalities making the deposits and for the bank that took it, Kganyago said.

Under municipal finance laws, local authorities must keep their money in full-fledged banks, which VBS as a mutual bank was not.

Earlier on Sunday City Press reported that VBS learnt six months ago that the treasury was warning municipalities they were breaking the law by keeping their money with VBS.

VBS later applied for a the full banking licence that would allow it to legally accept such deposits. But that application came in only at 8:42AM on 26 February, the Reserve Bank said.

It takes at least a year to evaluate an application for a banking licence.

The SARB dismissed – with unveiled contempt – suggestions first made by the VBS board that the bank was being targeted because it is managed by black people.

It was protecting the banking system without fear or favour, the Reserve Bank said. It was also looking out for the depositors of VBS, which beside municipalities is includes a large number of stokvels.

Earlier on Sunday, in response to the City Press article that foreshadowed the Reserve Bank announcement, the EFF issued a statement urging the government not to allow VBS to be placed into curatorship.

"The EFF is aware that VBS is being victimized due to a loan it gave to MrJacob Zuma for a house in Nkandla. Had it been a white-owned bank that had offered Zuma a loan, they would not be subject to victimization today," it said.

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