15 councils at risk of collapse due to VBS saga
CAPE TOWN - Nearly 15 municipalities across the country are reportedly at risk of collapsing as it is unlikely that they will recover their R1.5 billion investments at VBS Mutual Bank.
These municipalities were exposed to VBS to a large degree, more than their operating revenue, according to a Treasury document that was reportedly sent to the municipalities last week, according to Fin24.
According to reports, Senior Treasury officials are concerned that some of the municipalities could collapse. This would mean that these municipalities would be placed under administration by their provincial governments.
The report by Treasury further states that the 15 councils are unlikely to recover their investments which is worth total of R1.5 billion.
The Sarb has reportedly approved a restructuring that will benefit vulnerable groups such as stokvels and rural retail depositors. However, according to the Treasury document, there may be little funding left for municipalities.
The report further reveals that R900 million is missing at VBS which disappeared due to fake deposits and untraceable lending.
Further claims in the report state that the bank’s business model was “ill-fated and doomed to fail”.
Law was broken
VBS broke the law by prioritising municipal deposits, according to Treasury.
Curator’s excessive fees
In addition, two VBS senior managers accused the bank’s curator, Anoosh Rooplal of charging “exorbitant” fees. Rooplal sent the bank a bill of R2.6 million for three weeks of work.
The invoice was sent on March 31 and the bank paid the fee just three days later.
The curator's spokesperson, Louise Brugman reportedly said that Sarb approved the remuneration for the curatorship upfront.
In other VBS news, The South African Reserve Bank (Sarb) last month laid bare what it called the rot the curator found at the embattled VBS Mutual Bank, charging that the lender manipulated its own financial information.
Sarb deputy governor Kuben Naidoo said in an affidavit that VBS could not account for nearly R1 billion deposited with the bank.
In his response to VBS majority shareholder Vele Investment’s application to set the curatorship aside, Naidoo said the bank's failure to account for the money was a gross violation of banking laws.
“When Mr (Anoosh) Rooplal (the curator) commenced his duties on March 12, the liquid position of VBS Mutual Bank amounted to R24.7 million.
"This is in respect of a bank which held total deposits ostensibly in the region of R2.9bn,” Naidoo said.
“I say ‘ostensibly’, because Rooplal has been unable to confirm the veracity of a material portion of the so-called corporate deposits, which amount to approximately R900m.”
Naidoo said it was uncertain whether all these corporate deposits represent “true” deposits. The bank is currently under the curatorship of Anoosh Rooplal.
The central bank in March placed VBS under curatorship after it “experienced increasing liquidity challenges over the last 18 months.”
Naidoo also accused VBS of paying brokerage commissions to entities to attract deposits, mainly from municipalities, a move it calls “highly unusual.”
He said VBS's problems emanated from a failure of the board of directors and executive management to manage the bank's rapid growth and its funding and liquidity position.
In its founding affidavit, Vele challenged the process the central bank followed that eventually led to it being placed under curatorship.
The firm said the curatorship of VBS was reviewable under the Promotion of Administrative Justice Act.
“The notification has not come from the minister (of finance) but from the registrar of banks.
"The notification required in section 69 (1) has therefore been exercised by a party not authorised by the empowering statute to give notice to the affected bank,” Vele said.
“It consequently lacks legality and rationality.”
- BUSINESS REPORT ONLINE