Can VBS Bank be salvaged? It seems unlikely
The prospects of salvaging VBS Mutual Bank‚ which is under curatorship‚ have diminished and it is not clear that it can be saved‚ deputy Reserve Bank governor and Registrar of Banks Kuben Naidoo said in Parliament on Wednesday.
Naidoo gave an update on the state of the bank in a briefing to the standing committee on finance. He said the confidence that the bank could be salvaged was lower than when it was placed under curatorship — but this was not to say that it was zero.
VBS Mutual Bank was placed under curatorship in March when it faced liquidity challenges because it had accepted short-term deposits and made long-term loans. It had also relied too heavily on deposits from municipalities.
"Given what we know following two months of curatorship and preliminary investigations‚ the probability of salvaging this bank is lower‚" Naidoo said.
The Reserve Bank has provided a guarantee to retail deposits under R50‚000. Naidoo explained that it had taken a long time to put a mechanism in place to refund these depositors because the bank could not make an unsecured loan to VBS.
"To date we have not been able to establish the veracity of their assets — that is their loans — for us to determine whether that is adequate security to be able to put in money‚" Naidoo said.
He expressed the hope that‚ within the next two to three weeks‚ the Reserve Bank would have found a mechanism to make these repayments to retail depositors.
No explicit guarantee had been provided for municipal deposits and Naidoo said it was "highly likely" that municipalities that deposited funds with VBS would lose a significant portion of that money. Talks were under way with the Treasury and the Department of Co-operative Governance and Traditional Affairs to deal with this but it was not within the powers of the Reserve Bank to refund the municipalities.
Even in the unlikely and highly optimistic scenario that it was possible to recover all the loans granted by VBS Mutual Bank to pay off all depositors‚ it would take between seven and 10 years to accomplish.
Naidoo said the curator — Anoosh Rooplal of Sizwe Ntsaluba Gobodo — would have to restate the financial statements of VBS at least for the last financial year. This would also determine the salvageability of the bank.
He said the information provided by VBS to the Reserve Bank and its financial statements were not a true reflection of its financial affairs. Fake deposits had been entered into the VBS system‚ which enabled the bank to make loans‚ in many cases to related parties. The cash from municipal deposits to some extent covered this up.
VBS reported to the Reserve Bank that it had a very high loan repayment rate‚ but that nine of its 20 large corporate loans were not performing with no payments received for a significant period of time.
Naidoo said a forensic investigation was launched in April to see if fraud had taken place‚ to determine the accuracy of the information supplied to the Reserve Bank‚ to see whether there were related party loans to directors‚ shareholders or executive management and if these loans were dealt with in terms of the regulations.
The forensic investigation would probably take two to three months to be concluded‚ Naidoo said.