Municipalities disclosed at least R500m in exposures to VBS Mutual Bank in their filings to treasury last year, even as treasury warned them they were breaching finance regulations by dealing with a mutual bank.
The filings show municipalities such as Merafong in Gauteng’s West Rand, and Greater Giyani and Polokwane, both in Limpopo, had placed at least R412m in the bank at the end of June 2017. Another municipality, Makana in the Eastern Cape, had nearly 16% of its R12.6m cash deposits in GBS Mutual Bank, VBS’s rival.
This contravened the Municipal Finance Management Act (MFMA), which states that no municipality may open an account with an institution which is not registered as a bank in terms of the Banks Act. Mutual banks are governed by a separate act.
Most of the money deposited with VBS consisted of unspent conditional grants, and these were slashed by R13.7bn over the medium term in government’s 2018 budget to free up cash for fee-free higher education.
Treasury makes the grants to provincial and local government on condition they spend it on certain items such as infrastructure, housing and public-transport networks.
By January, municipal deposits in VBS had grown to R1.5bn. By March 6, municipalities that finally complied with treasury directives tried to withdraw R507m from VBS, according to a confidential letter the Reserve Bank sent to Tshifhiwa Matodzi, VBS’s former chairman, when the bank was advised of the decision to place it into curatorship last week.
But because VBS had loaned a large chunk of this money out to long-term borrowers, such as homeowners — without raising capital reserves for rainy days such as these — it experienced a severe liquidity crunch which compelled the Reserve Bank to place it under the care of curator Anoosh Rooplal.
Matodzi has since resigned as chairman of Vele Investments, VBS’s majority shareholder. Maanda Manyatshe, his replacement, did not answer questions about who first told the bank that it did not meet MFMA requirements, and why it continued to take deposits.
Instead, Vele lodged court papers intending to challenge the curatorship — but withdrew these a day later, after talks with treasury and the Reserve Bank.
Still, the municipalities involved, which Reserve Bank deputy governor and banks registrar Kuben Naidoo says numbered 21, are faced with the prospect of losing everything placed with VBS — in a year in which President Cyril Ramaphosa has promised to accelerate the implementation of new infrastructure projects — specifically in water, health, and road maintenance.
"It is likely the [cash] is from the equitable share or conditional grant," says Ismail Momoniat, treasury’s deputy director-general.
"The curator is looking at the bank, and not the municipality, so is unlikely to know the source within the municipality. That is what treasury — and the auditor-general — will need to find out once we know what total amount is lost by a municipality."
Most municipalities met the Financial Mail with a stony silence when asked about their decision to deal with a mutual bank.
But the Greater Giyani Local Municipality defended its decision, saying political pressure arising from the bank’s granting of a home loan to former president Jacob Zuma had nothing to do with it.
"To choose them, we used the normal procedure of sourcing and comparing quotations in so far as interest rates are concerned," says spokesman Steven Mavunda.
The municipality had two accounts with VBS with collective balances of R153.9m, both opened in the last four months of 2017.
"We are obviously concerned about the situation," he says. "We have already met the bank representatives to discuss the matter. All we can say is that we are satisfied that our investment is safe. The curator has also assured us that we will get all our investments back, and that assurance is quite satisfactory to us."
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