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Sarb guarantees R336 million in VBS deposits

Fraud casts doubt over bank’s future.

The South African Reserve Bank (Sarb), with the backing of National Treasury, has guaranteed more than R300 million in retail deposits at VBS Mutual Bank.

The central bank last week increased the value of funds guaranteed for retail depositors from R50 000 to R100 000. The guarantee for individual depositors, funeral schemes, burial societies, savings clubs and stokvels was secured from National Treasury.  

At R100 000 per depositor, Sarb has now guaranteed around R336 million in deposits. Total retail deposits with the bank are estimated to be around R370 million, meaning that 97% of the bank’s 22 700 retail depositors will receive all their money, according to Sarb deputy governor Kuben Naidoo.

Sarb governor Lesetja Kganyago on Monday outlined an agreement reached with Nedbank to facilitate the payment of depositors’ monies. From Friday July 13, Nedbank will open accounts for retail depositors and load them with a balance equivalent to the amount of the guaranteed deposit. Retail depositors will then be able to withdraw up to R100 000 of their funds at Nedbank branches or ATMs – retail depositors have three years to claim their deposits.

Nedbank was selected on the basis of fees charged, the proximity of its branches in relation to branches of VBS, and products comparable to those offered by VBS. Nedbank chief executive Mike Brown said the bank would up its staff and working hours in proximity to VBS branches in Limpopo as well as dispatch four mobile branches to the area and hold town hall meetings to engage with VBS depositors. He told Moneyweb that Nedbank would not charge for the assistance it was asked to provide in the matter. “Nedbank hopes the vast majority of VBS retail depositors retain their new Nedbank accounts and remain as satisfied customers of Nedbank into the future.”

To date, no guarantees have been provided for the funds deposited by municipalities, large businesses and corporates, all of whom will retain their deposits in VBS. The bank had over R1.5 billion in municipal deposits when placed under curatorship despite it being illegal for municipalities to make deposits into mutual banks, which are not registered in terms of the Banks Act rendering. “Municipalities had no business placing deposits with a mutual bank,” said Kganyago. “They knew they were breaking the law. They did it anyway.”

VBS Mutual Bank was placed under curatorship in March this year amid a liquidity crunch. Court documents – based on information uncovered during a forensic investigation – have since revealed that the bank was looted by its own management, whose fraudulent schemes cost the bank around R1.5 billion.

On Friday, curator SizweNtsalubaGobodo Advisory Services – represented by Anoosh Rooplal – instituted a High Court application for the liquidation of VBS shareholder Vele Investments. Further applications were brought against five VBS executives for the sequestration of their estates.

The curator is seeking to recover R1.5 billion in assets owned by VBS and will restate the bank’s financial statements for 2017. Prior years’ statements may also be restated if deemed necessary. Rooplal said the fraud uncovered during the forensic investigation had complicated the curatorship and cast doubts about the survival of the bank. “The wide-scale fraud that has been perpetuated against the bank has certainly derailed the curation process. I think one needs to understand that when we commenced curatorship duties, the issue at hand was a pure liquidity, but now that has morphed into something much more with the fraud aspects. By virtue of that we are not as confident as initially, when we first stepped in,” Rooplal said.

Naidoo said the success or failure of the bank would not determine whether the Treasury-backed guarantee would be called upon, but rather whether sufficient assets can be collected to repay Treasury. “Our view, at this stage, is that there are sufficient quality assets to be able to recover the R336 million for the guarantee.”

All loan contracts remain valid and enforceable, and customers are required to continue paying monthly instalments agreed upon.

WATCH: South African Reserve Bank governor Lesetja Kganyago responds to a journalist who asked how fraud at VBS Mutual Bank was carried out under the central bank’s watch.

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COMMENTS   17

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This is a Joke! When are the criminals going to jail? Hopefully soon.

Again, the citizens bailing out corrupt entities.

The moral hazard has not been dealt with.

Again proof that crime pays handsomely in SA.

Oh really, how big was the taxpayer bailout in the US in 2008?

and how many bankers were jailed there?

Just a few SA criminals caught in a western model of Incorporated theft..

@casi_negro Agree, but again, the “what aboutism” isn’t helping

This event serves to remind us that our money, put on deposit for safekeeping at the bank, is actually regarded as a loan to the bank. Because the deposit is regarded as a loan, it is not our money any longer because the same asset cannot belong to different parties at the same time. The bank then takes this amount we “lend” to it, and in turn, lend ten times this amount to other parties, of whom many deposit their loan at the same bank to repeat the process.

This situation makes it clear that a bank is an extremely fragile and inherently unstable business. This is the only reason for the existence of a Reserve Bank, to bring stability into the system. The Reserve Bank does not have money, so where do they get the funds to bail out stressed banks? They can either use taxpayer money, or they can do like the Federal Reserve, ECB, Bank of Japan or the People’s Bank of China and simply print the money.

This leads us to the question- what is the difference between VBS and any other bank? The owners and managers misappropriated client funds for their personal use, where other banks misappropriate client funds to use as inputs for their business model.

The fractional-reserve banking system is perfectly legal of course. This means that banking is the only industry that has a license from the state to commit fraud as an inherent part of their business model.

When a farmer delivers wheat to the value of R100 000 to a grain silo for safe-keeping, the silo-operator will be guilty of fraud if they issue more silo-certificates than the amount of grain they have in the silo. The moment the farmers sells this wheat, and deposits the R100 000 in his bank account, the bank then creates 10 times as many “receipts” and lends the funds they created out of thin air to new clients.

As an investor I am all in favour of this system, because fractional-reserve banking and credit expansion forms the basis of all bull markets.

“Because the deposit is regarded as a loan, it is not our money any longer because the same asset cannot belong to different parties at the same time.”

OK, that’s where you showed you don’t have a cooking clue what you are talking about.

@WTF you are the one showing you don’t have a cooking clue what you are talking about. Sensei is right, we are using the fraudulent fractional-reserve banking system

Where was the Reserve Bank when Sharemax and Picvest went belly-up?
Only asking…..

I share your sentiment. Investors lose.

Remember they were not trading as (registered) commercial banks, hence no banking protection.

Sharemax, Picvest (&others) should’ve just registered as licensed banks, to get same protection (…but the banking registrar would get sniff in the nose beforehand & decline application).

So such “investment schemes” thrive on people’s greed, as they can give you so much better % rate than the terrible banks 😉

People losing through cleverly packaged/marketed schemes…it serves as THE BEST tool for financial learning in one’s entire life. So they won’t get caught out again. In that light I see it as positive.

“The bank had over R1.5 billion in municipal deposits… despite it being illegal…”

When is someone, anyone, going to go to jail?

”The most delicious of all privileges – spending other people’s money”
John Randolph (1773-1833)

As per usual, nothing will happen to these ”bankers and directors”. but the poor guy who steals a pencil from ”Pick n Pay”, will be prosecuted and jailed, immediately!

Investing the African way.

I wonder if Jacob is still servicing his loan – ha ha

Yet again, the taxpayer is called upon as underwriter, to bail out failures and sponsor corruption.

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