mounting that up to 15 municipalities across the country could collapse because
they are not likely to recover their R1.5 billion investments at VBS Mutual
exposure to VBS was “too large compared to their operating revenue”, according
to a Treasury document sent to the affected municipalities last week.
Reserve Bank (Sarb) placed VBS under administration in March, following a
liquidity crisis. VBS’s main source of cash was illegal short-term municipal
deposits which it used to fund long-term loans to clients.
Treasury officials fear that some of the municipalities – based in Limpopo,
North West, Gauteng and Mpumalanga – could collapse. This would force their
provincial governments to place them under administration.
Treasury report reveals that the 15 councils are unlikely to recover their R1.5
billion total investment. “The payout to municipalities is highly uncertain,”
the document reads.
point out that Sarb is likely to prioritise retail depositors and not bail
municipalities out. “In line with the mandate of protecting the most
vulnerable, the restructuring will focus on the depositors. At this stage, the
ordinary depositors will get back almost all their deposits,” reads the document.
already approved a restructuring that would benefit rural retail depositors,
funeral insurance collectives, stokvels “and other vulnerable groups”. “There
may be little left for municipalities, which deposited illegally. It is a
general principle that no bailouts are provided to municipalities,” the
Treasury document says.
Treasury executive said there were concerns that because of their “reckless
investments” at VBS, some of the municipalities may no longer be financially
viable. “Some of their finances are in tatters, and they may need to be placed
under administration,” the executive said.
Salaries in jeopardy
official cited the example of Giyani, which invested R158 million of its R302
million operating revenue in VBS. “How does a municipality without half of its
operating revenue survive?” the official said.
established Lim 345 Municipality, in the Thohoyandou area, had invested R122
million of its R344 million operating revenue in VBS. Greater Tubatse in
Sekhukhune had put R210 million, or 38%, of its R548 million operating revenue
in the bank.
Treasury executive said this money was part of municipalities’ annual budgets
and not extra money that the councils could function without. “Unfortunately,
they have lost all that money and it is only a matter of time before you hear
that some of them are not able to pay salaries. I’ve heard that one of them
nearly didn’t pay salaries in November last year,” he said.
executive member of the SA Local Government Association said it was “almost a
foregone conclusion that some of these municipalities will crash”. “We are
losing sleep over the issue. The money was strictly for operational issues, not
reckless investments,” said the official.
Fictitious deposits, untraceable lending
Treasury report reveals that about R900 million is missing at VBS.
appears to have disappeared due to fictitious deposits and untraced lending.
There is evidence of large, unrecoverable loans to directors and related
parties. There is some evidence that VBS paid a lawyer a ‘commission’ when
municipalities deposited money with the bank. It is not, at this stage, evident
if this commission was passed on to municipal managers.”
says the bank’s business model was “ill-fated and doomed to fail”. “VBS made
long-term loans, knowing that their primary funding was short-term in nature
and lumpy. Hence the business model is almost certainly designed to generate
liquidity problems when a few municipalities withdraw their funds to spend on
budgeted programmes,” the report reads.
Law was broken
says VBS actively flouted the law by focusing on municipal deposits, which made
up almost 75% of all its deposits. Despite being aware of the restrictions on
accepting municipal deposits, the bank continued to accept more. This continued
even after it started talking to Treasury about phasing out its past municipal
deposits, in order to comply with the Municipal Finance Management Act.
Mahikeng, Greater Tubatse, Ruth Segomotsi Mompati and Elias Motsoaledi
municipalities appear to have been enticed by the high returns the bank
promised and disregarded the act.
Curator’s ‘extortionate’ fees
senior managers accused the bank’s curator, Anoosh Rooplal, employed by
auditing firm SizweNtsalubaGobodo, of charging “exorbitant and extortionate”
fees. He sent the bank a bill of R2.6 million for three weeks of work.
appointed Rooplal when it placed VBS under administration in the middle of
March. Rooplal sent the bank his invoice on March 31. The bank paid three days
One of the
managers said: “If you invoice R2.6 million in three weeks, how much will you
be paid every month? How much will Anoosh and SizweNtsalubaGobodo be paid by
the time the bank is back on its feet? It all looks exorbitant and
manager lamented the fact that while depositors could not access their money,
the curator was being paid handsomely. “It simply just doesn’t make any sense
to me,” the manager said.
curator’s spokesperson, Louise Brugman, said Sarb had approved the remuneration
and fee structure for the curatorship upfront. She said that, as per normal
governance practice, the curator was required to regularly update Sarb on fees,
related activities and the bank’s financial position. “As further irregularities have been uncovered within the bank, additional experts have been required to assist to restore the bank, all of which is reported and explained to Sarb,” she said.