An outside view of the South African Reserve Bank in Pretoria. The Reserve Bank has not given up hope that it may be able to save the VBS Mutual Bank under its curatorship. Photo: Bongani Shilubane/African News Agency (ANA)
JOHANNESBURG - Chances of saving the VBS Mutual Bank have diminished, but the South African Reserve Bank has not given up on rescuing the beleaguered small lender, the chief executive of Prudential Authority, Kuben Naidoo, said yesterday.

The Reserve Bank placed VBS under curatorship in March amid concerns over its liquidity. The VBS curator in April withdrew the audited annual financial statements of the bank for the year ended March 31, 2017, saying they contained material misstatements “and are no longer considered to be reliable”.

Speaking at the release of the bank supervision department's annual report yesterday, Naidoo said the Reserve Bank’s confidence that it could save VBS had declined after it discovered that VBS liquidity was far worse than it had previously envisaged. He said the Reserve Bank was taking steps to rescue the lender.

“We have had to put in place very tough deposit limits. In April, we instituted a forensic investigation under the chairpersonship of Terry Motau, SC, to investigate whether there is fraud in this bank and that investigation is still under way. It is certainly our intention to continue with the curatorship and to protect depositors’ interest,” said Naidoo.

The Reserve Bank yesterday said it had imposed administrative penalties amounting to R77.5 million to VBS and the Johannesburg branch of the China Construction Bank Corporation for failing to comply with the Financial Intelligence Centre Act (Fica).

The two banks failed, among others, to identify and verify customers’ details and to implement adequate processes and working methods in relation to the sanctions screening of customers to ensure that the bank complies with its reporting duties. It said the banks had inadequate controls and working methods pertaining to the reporting of suspicious and unusual transactions.

Naidoo, who is also the Reserve Bank’s deputy governor, said progress had been made in placing the "new" African Bank on a sustainable footing and under the curatorship of Residual Debt Services, which houses the bad loans removed from the bank at the time of curatorship.

“The new bank has made good progress with the execution and delivery of its strategy, which includes diversifying its product offering to become a retail bank, widening its customer base and broadening its distribution channels. (The Bank Supervision Department of the Reserve Bank) has continued to recover amounts due in respect of the residual book,” said Naidoo.

The Reserve Bank gave the South African banking system a thumbs-up, saying it was sound and stable. It said there was renewed growth in banking sector assets and this was largely underpinned by an increase in loans and advances, investments and trading securities, short-term negotiable securities and derivatives.

It said banks continued to post healthy profitability ratios and were adequately capitalised, with capital adequacy ratios above the minimum statutory requirements. The banking sector had an overall liquidity coverage ratio of 119percent, which is above the Basel 3 minimum requirement of 80percent in 2017.