A R350m credit facility that the Public Investment Corporation (PIC) extended to VBS Mutual Bank in 2015 was used for special "loans" to clients that were not monitored for repayment.
Officials at the bank also created fake loan applications using the information of existing clients to justify drawing down on the PIC funds, which were then used to plug the growing cash hole in VBS.
The details of the defrauding of the PIC forms part of the report by advocate Terry Motau into the collapse of VBS, commissioned by the SA Reserve Bank and published on Wednesday. Motau's report revealed blatant theft by executives and gratuitous payments made to a politically connected individuals.
The PIC's R350m credit facility was used by VBS to fund its "contract finance" book. Ninety percent of the loans on the "contract finance" book were non-performing, VBS executives told the investigation. The contract finance book was kept on an Excel spreadsheet and never integrated into the bank's operating system, making it easy to manipulate.
The PIC, which invests R2tr in funds on behalf of government pension and other social funds and is the continent's biggest asset manager, owns 26% of VBS through its biggest client the Government Employees Pension Fund (GEPF). The GEPF inherited its shareholding in VBS when it absorbed the pension fund of the Venda bantustan government.
The PIC subsequently put new capital into the bank in 2002 and in 2015 provided a further R350m credit facility. The PIC was considering a request for further funding of R2bn when it collapsed.
But the cash it provided in 2015 appears to have been passed directly to VBS clients in loans that were not subject to "normal credit granting procedures" or used as a slush fund by bank executives.
Motau said: "It was plain to me that contract financing was a prime location of the looting from VBS."
The CEO of VBS, Andile Ramavhunga, told investigators that different rules applied to the contract finance book because it was "off balance-sheet" funding and had been ring-fenced and provided by the PIC for that purpose.
Motau rejected this explanation, which he said was in the "realms of absurdity".
Few, if any loans in the book, were serviced.
VBS CFO Philip Truter testified that "80 to 90% of the contract finance book should have been impaired on the basis of non-performance". Instead, falsified financials showed that only a small portion of loans, less than 1%, were impaired.
VBS officials also created fake loan applications by copying and pasting client signatures and details from existing loans to new addenda, which could then be used to draw down more funds.
Two PIC representatives on the VBS board Paul Magula and Ernest Nesane confessed to the investigators that they had turned a blind eye to the fraud in return for large payments. Both received R7m, which Motau says were "buying silence from those who could speak the truth."
The two have since left the PIC, which is pursuing criminal charges against them.
R350m taxpayer funds blown on generous loans
A R350m credit facility that the Public Investment Corporation (PIC) extended to VBS Mutual Bank in 2015 was used for special "loans" to clients that were not monitored for repayment.
Officials at the bank also created fake loan applications using the information of existing clients to justify drawing down on the PIC funds, which were then used to plug the growing cash hole in VBS.
The details of the defrauding of the PIC forms part of the report by advocate Terry Motau into the collapse of VBS, commissioned by the SA Reserve Bank and published on Wednesday. Motau's report revealed blatant theft by executives and gratuitous payments made to a politically connected individuals.
The PIC's R350m credit facility was used by VBS to fund its "contract finance" book. Ninety percent of the loans on the "contract finance" book were non-performing, VBS executives told the investigation. The contract finance book was kept on an Excel spreadsheet and never integrated into the bank's operating system, making it easy to manipulate.
The PIC, which invests R2tr in funds on behalf of government pension and other social funds and is the continent's biggest asset manager, owns 26% of VBS through its biggest client the Government Employees Pension Fund (GEPF). The GEPF inherited its shareholding in VBS when it absorbed the pension fund of the Venda bantustan government.
The PIC subsequently put new capital into the bank in 2002 and in 2015 provided a further R350m credit facility. The PIC was considering a request for further funding of R2bn when it collapsed.
But the cash it provided in 2015 appears to have been passed directly to VBS clients in loans that were not subject to "normal credit granting procedures" or used as a slush fund by bank executives.
Motau said: "It was plain to me that contract financing was a prime location of the looting from VBS."
The CEO of VBS, Andile Ramavhunga, told investigators that different rules applied to the contract finance book because it was "off balance-sheet" funding and had been ring-fenced and provided by the PIC for that purpose.
Motau rejected this explanation, which he said was in the "realms of absurdity".
Few, if any loans in the book, were serviced.
VBS CFO Philip Truter testified that "80 to 90% of the contract finance book should have been impaired on the basis of non-performance". Instead, falsified financials showed that only a small portion of loans, less than 1%, were impaired.
VBS officials also created fake loan applications by copying and pasting client signatures and details from existing loans to new addenda, which could then be used to draw down more funds.
Two PIC representatives on the VBS board Paul Magula and Ernest Nesane confessed to the investigators that they had turned a blind eye to the fraud in return for large payments. Both received R7m, which Motau says were "buying silence from those who could speak the truth."
The two have since left the PIC, which is pursuing criminal charges against them.