The little known VBS Bank shot to national prominence when City Press in 2016 revealed that it was processing a loan application from Zuma for the R7.8 million he needs to pay for the Nkandla security upgrades.
The bank that came to the rescue of President Jacob Zuma Nkandla debt now faces a possible probe from the Financial Services Board relating to an R136 million loan.
In order to understand, what really happened at VBS Bank and when it actually became a structure and why it is in the limelight, Eusebius McKaiser sat down with Editor Financial Mail and Author of The Grand Scam Rob Rose.
Rose says mutual banks are a very specific thing and not like the traditional corporate banks.
They are smaller entities, there are fewer rules in place for them that govern how they operate. So VBS started in 1982 in the all traditional Venda area and was a Venda Building Society and has since grown a lot.— Rob Rose, Editor Financial Mail and Author of The Grand Scam
Rose adds that the bank took on new shareholders in 2011 as it was in a bad place and the new shareholders put in a lot of money.
What happened over the next few years, is that it took on a lot of deposits from municipalities and that proved to be one of those sticking points, because of a mutual bank as an entity that is far less regulatory certainty of what it can do. Treasury didn't like them taking municipal deposits because they are far more uncertain.— Rob Rose, Editor Financial Mail and Author of The Grand Scam
You don't want a municipality losing R400 million which seems could be the case here and that is why Treasury put in place laws that say you cant do this. But in the case of VBS, it had been taking municipal deposits for quite a while.— Rob Rose, Editor Financial Mail and Author of The Grand Scam
He says VBS wanted to become a commercial bank partly because it would have resolved the issues with municipalities.
The other problem with VBS is that if a municipality deposits money, the bank works by, it takes deposits from you and it then lends that money out. So in this case, it was taking deposits from municipalities who could demand the money back on a short-term basis. They could say please pay me back the R500 million I deposited with you.— Rob Rose, Editor Financial Mail and Author of The Grand Scam
And then lending it out for things like mortgage loans which are for longer terms like 20 years. Or give loans to companies that could only repay over a certain amount of time. So there was a mismatch between the business strategy of VBS.— Rob Rose, Editor Financial Mail and Author of The Grand Scam
He adds VBS had R2,9 billion of depositors and all of those were 'smaller guys' like stockvels and a lot of vulnerable communities in Venda.
Rose explains how VBS went under curatorship.
Listen below to hear the whole history of the mutual bank...