Parliament - The South African Reserve Bank will establish a commission of inquiry into Venda-based mutual bank, VBS, to check whether the regulator "dropped the ball" in terms of its oversight and to look into possible fraud at the bank, MPs were told on Wednesday.
"Yes, it is the full intention of the governor to appoint a commission [of inquiry] to see what went wrong," SARB deputy governor and banks registrars, Kuben Naidoo said while briefing MPs on the curatorship of VBS mutual bank.
"There are two sides to the story. The registrar will tell you the information we were receiving from the bank was not the truth. They were lying to us and the other side of the story, but yes you the regulator, surely you should have known this."
Naidoo said the bank lied to SARB about a R470 million capital requirement it was obliged to have as a buffer to pay back depositors.
Read: SA municipalities to lose big after depositing millions in VBS
"They had deposits with the national payment system of about R120 million and the remaining R350 million should have been held as any tier one capital in a bank in government paper or in cash," he said.
"It was only on day one of curatorship did we realise there is nothing there. There's no capital. It's gone. Every month we received the returns from this bank. It says R470 mln held in these instruments."
If the R470 million buffer was available, curators would have been able to "fully pay 100 percent of all retail deposits, including the burial societies, the stokvels".
The bank's total retail deposit book stood at R390 million.
Naidoo also told MPs municipalities who held combined deposits of around R1.5 billion were likely to lose significant amounts of money, adding the probability that VBS could be salvaged is much lower since curators stepped in in March.
"Following two months of curatorship and preliminary investigations, the probability of salvaging the bank is lower," Naidoo said.
"The curatorship is ongoing. We have every intention to continue with the curatorship to protect deposits..."
Naidoo said while SARB would guarantee deposits for R50,000 and less, several municipalities which deposited huge amounts of money in the bank, in contravention of the Municipal Finance Management Act, would lose on their "investment".
"It's likely municipalities will lose a significant portion of money they invested in the bank."
Naidoo said even in an optimistic scenario, it would take around seven to ten years to recover all the money owed to depositors.
He said the law prevented SARB from making VBS an unsecured loan.
"To date, we are not able to establish the veracity of their assets, their loans for us to determine whether there's adequate security for us to put money in."