VBS Mutual Bank, one of South Africa’s smallest lenders, has been put into administration after it was unable to repay money owed to municipalities, according to the country’s central bank.
The management team has been relieved of its duties and a curator from the auditing firm SizweNtsalubaGobodo put in place following a “severe liquidity crisis,” Lesetja Kganyago, governor of the South African Reserve Bank, told reporters. Retail depositors’ money is guaranteed and VBS will stay open, he said.
VBS has operated as a licensed mutual bank, funded by its members, for 25 years, according to its website. The lender, which isn’t listed, gained attention in 2016 when it gave former President Jacob Zuma a mortgage to settle a Constitutional Court order to repay taxpayers some of the money spent upgrading his private residence. The bank was fined 500,000 rand ($42,319) last year because of weaknesses in its control measures to prevent money laundering and combating the financing of terrorism.
“Eighteen months ago there was a significant increase in municipal deposits” at VBS, Kuben Naidoo, South Africa’s banking regulator, said in the same presentation. “It’s quite a risky strategy to take that money and lend it long term. When the municipalities came asking for that money, the bank wasn’t able to pay.”
The trigger that sent the bank into administration was its inability to honor an obligation to a municipality on Feb. 16, Naidoo said, without identifying the municipality. Although VBS was asked to develop a plan, it became clear that its major shareholders wouldn’t be able to provide the amount of money the bank needed within a short space of time, Naidoo said.
VBS operates six branches across the country and calls itself a black-owned specialist corporate-finance and retail bank. VBS’s total assets were 2.4 billion rand at the end of December, according to the most recent central bank data. One of the biggest shareholders is the Public
Investment Corp., Africa’s largest fund manager.
“We don’t see a solution to the liquidity problems other than the solution of curatorship,” Naidoo said. “Small depositors with less than 50,000 rand should be able to access their money overnight. It’s quite likely that all depositors won’t be able to get their money immediately.”
South Africa’s National Treasury said it will engage with affected municipalities to determine the extent of their potential loss and ensure service delivery isn’t affected. Treasury worked closely with the central bank in the past few weeks to try and save VBS to protect ordinary depositors, it said in a statement.
“It is never the intention of Treasury for any bank to be liquidated, particularly a small black-owned bank,” it said. “National Treasury’s actions are trying to balance the need for a more diversified small banking sector against the need for well-run and well-governed municipalities.”