VBS Mutual Bank was a South African mutual bank. In 2018 it was declared insolvent and bankrupt and placed under curatorship, with South African citizens and taxpayers defrauded out of roughly R2 billion. It was formed as Venda Building Society in 1982, and became a mutual bank in 1992. By 2016 the bank reportedly had around 30,000 depositors with all deposits in the bank totalling R800 million. In 2017 the bank planned to list on the Johannesburg Stock Exchange; however, this never materialized. Most of its branches and clients are located in Limpopo province.

History

Prior to 2014 the bank was relatively small and primarily involved in retail banking with many of its depositors consisting of

burial societies A burial society is a type of benefit/friendly society. These groups historically existed in England and elsewhere, and were constituted for the purpose of providing by voluntary subscriptions for the funeral expenses of the husband, wife or child o ...

and stokvels. The bank in turn issued mortgages and short-term loans to its clients allowing them to use their property or banking deposits as collateral. The South African Public Investment Corporation inherited its shares in VBS bank when it succeeded the pension fund of the Venda bantustan government thereby giving it a 25% ownership stake in the bank. Largest shareholder in the bank was Dyambeu Investments which owned 26% of the bank, 51% of Dyambeu Investments was owned by the Venda Royal family. Prior to coming under curatorship in 2018 the bank gained notoriety in 2016 when it gave a R7.8 million loan to then President

Jacob Zuma Jacob Gedleyihlekisa Zuma (; born 12 April 1942) is a South African politician who served as the fourth president of South Africa from 2009 to 2018. He is also referred to by his initials JZ and clan name Msholozi, and was a former anti-apart ...

when he was ordered to repay the state for controversial improvements to his personal homestead at Nkandla. In mid-2018 the

South African Reserve Bank The South African Reserve Bank (SARB) is the central bank of South Africa. It was established in 1921 after Parliament passed an act, the "Currency and Bank Act of 10 August 1920", as a direct result of the abnormal monetary and financial condit ...

(SARB) instructed municipalities to withdraw their deposits in the bank as the Municipal Finance Management Act prevented them from depositing public funds in mutual banks. This, along with mismanagement and corruption within the bank, created a

liquidity crisis In financial economics, a liquidity crisis is an acute shortage of ''liquidity''. Liquidity may refer to market liquidity (the ease with which an asset can be converted into a liquid medium, e.g. cash), funding liquidity (the ease with which borrow ...

for the bank. The prudential authority filed for VBS bankruptcy at the

North Gauteng High Court The Gauteng Division of the High Court of South Africa is a superior court of law which has general jurisdiction over the South African province of Gauteng and the eastern part of North West province. The main seat of the division is at Pretoria, w ...

on 30 October 2018. On 13 November 2018 the North Gauteng High Court issued a final order to liquidate VBS mutual bank.

Curatorship

Following liquidity problems, VBS Bank was placed under curatorship on 11 March 2018 in terms of the South African Banks Act, Act 94 of 1990, by the South African Reserve Bank. The collapse of the bank had a large negative impact on the funeral industry in Limpopo Province as the bank was unable to honour insurance and burial society obligations backed by the bank. It also had a devastating impact on stokvel and saving societies held by poor, predominantly black, South Africans in the Limpopo Province. In October 2018 the national government announced that it would not bail out South African municipalities that had irregularly deposited R1.57 billion with the bank before it collapsed. After the bank's collapse it was found that the bank held R372 million in

negative equity Negative equity is a deficit of owner's equity, occurring when the value of an asset used to secure a loan is less than the outstanding balance on the loan. In the United States, assets (particularly real estate, whose loans are mortgages) with ne ...

Corruption

A 2018 report released by the SARB in October found evidence of wide-scale looting, fraud and corruption. It recommended that bank leadership, public officials and auditors be criminally charged and held liable in civil proceedings. The report found that R1,894,923,674 was transferred from the Bank to fifty three individuals between 15 March 2015 and 17 June 2018. According to the report, R16,148,569 of that money went to Brian Shivambu, younger brother of the Economic Freedom Fighter senior politician Floyd Shivambu. The report also implicated the

African National Congress The African National Congress (ANC) is a social-democratic political party in South Africa. A liberation movement known for its opposition to apartheid, it has governed the country since 1994, when the first post-apartheid election install ...

's deputy chairperson for Limpopo, Florence Radzilani, and treasurer, Danny Msiza. EFF leader

Julius Malema Julius Sello Malema (born 3 March 1981) is a South African politician and activist who is a Member of Parliament and the leader of the Economic Freedom Fighters (EFF), a left-wing party which he founded in 2013. He was formerly the President of ...

sued a former EFF senior member of his party for alleging that Malema had admitted to him that he benefitted from corruption at VBS. Malema later withdrew the lawsuit. By June 2021 Brian Shivambu paid back R4.55 million and admitted that he received VBS money.

defaulted on a R7.8 million loan that he obtained to finance his

Nkandla homestead The private residence of former South African President Jacob Zuma is situated about south of the rural town of Nkandla in KwaZulu-Natal and is commonly referred to as the Nkandla homestead. During Zuma's presidency, the homestead was the sub ...

. In June 2020 eight people associated with VBS and the bank's auditor, KPMG, were charged by the NPA on 47 counts of theft, fraud, corruption and contraventions of the Prevention of Organised Crime Act. Chairperson Tshifhiwa Matodzi, CEO Andile Ramavhunga and CFO Philip Truter were among those arrested and charged. As part of ongoing investigations, the

Hawks Hawks are birds of prey of the family Accipitridae. They are widely distributed and are found on all continents except Antarctica. * The subfamily Accipitrinae includes goshawks, sparrowhawks, sharp-shinned hawks and others. This subfa ...

arrested three additional individuals suspected of fraud on 16 November 2021.

Lawsuits

In February 2021, the liquidators for the bank sued their auditor, KPMG, for 863.5 million rand (~US$59 million) over its audit opinion on the now defunct bank. In July 2021, South Africa's largest asset manager, the

Public Investment Corporation The Public Investment Corporation (PIC) is a South African state-owned entity (SOCNational Government of South Africa''Public Investment Corporation SOC Ltd (PIC)'' on www.nationalgovernment.co.za) with R2.339 trillion (USD 145 Billion) o ...

(PIC) sued KPMG for 144 million rand (~U$9.5 million) it lost when the VBS Mutual Bank went bankrupt as a result of fraud. Its claim is centred on the rights issue and a revolving credit facility it participated in at VBS relying on financial statements audited by KPMG and its former senior partner, Sipho Malaba.

References

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