Kuben Naidoo – the man behind the VBS debacle
BY EMAIL (CC: Mr. Dondo Mohajane-Natl treasury)
Mr. Kuben Naidoo
Registrar of Banks South African Reserve Bank
Helen Joseph Street Pretoria 001
09 MARCH 2018
Dear Kuben, I write this personal letter to you with a very sore heart and disappointment about the country’s banking system. I feel very disappointed because the events that unraveled at VBS indicated that banks are not treated the same and it was clear that VBS was never welcome in this exclusive system.
When VBS was then a struggling bank in the early 2011 under white management and white board control (even though majority of shareholders were black) it hardly had any major issues from the Reserve Bank. Other than the fact that the SARB was worried about its sustained losses.
The bank then was a struggling, small bank and with no concrete business strategy in place and was slowly disappearing into irrelevance and oblivion. During 2012 when opportunity for Dyambeu came to buy shares in the bank and became a controlling shareholder all was well until Dyambeu made its intentions clear that it wants to turn around the bank and intends to remove most of the redundant white management. This was when all hell broke loose and Reserve Bank started acting in haste and starting to highlight compliance and other issues about the bank that were not highlighted with prior management, even to a point of refusing to approve black director appointments who were more qualified than their white counterparts.
We fought this battle for more than a year with the SARB and the message was clear that we are not welcome. We embarked on a recruitment drive to get young and highly qualified staff from the onset amid tough budgeting conditions and an unknown brand. When new management took over and conducted risk assessment on the bank there was very little SARB compliance issues raised about the bank but to our surprise compliance issues increased tenfold from SARB immediately after black management was appointed even though these issues should have been raised during the time of old management, this was clearly done to create an impression that black management is incompetent and noncompliant.
We also inherited legacy IT systems and outdated processes, these are issues which takes years to fix but immediately this was placed on our shoulders as if we created them with heightened urgency. Our initial business strategy was torn into pieces at the time by SARB with a clear intention to close down the bank as being unviable. We again fought this battle and asked for time to prove ourselves and immediately the bank returned to profitability. It quickly became clear that VBS is destined for greater things as it became one of the fastest growing banks. The record of VBS annual trilateral meetings between the bank and SARB indicates that the bank has been improving on most aspects and even more than its peers in certain respects but when there are one or more adverse issues as with other banks VBS issues tend to be magnified to create an impression that the problem is bigger than it is. This is always done to ensure that VBS management and board are always seen in bad light in higher echelons of the SARB and damage their reputations silently.
When VBS received an application from the former president for his loan more than three months prior to approval. We prudently informed Your Office via bank supervision department and we kept the SARB informed at every aspect of our loan approval in terms of our risk management process which bank supervision has oversight of and minutes of how we arrived at our decision. Even during this time, we even educated the bank supervision staff as to how a rural home loan works as we are experts in this field. But when news broke and the media attacked VBS as a rogue bank with no processes, Reserve Bank kept silent throughout, this is in contrast to Capitec/Viceroy saga which the privileged bank was immediately defended by the SARB within 12 hours.
The silence was clearly intended to ensure the bank is judged through insinuations by the media as a rogue bank with some obscure shareholders and shady processes. VBS received positive reception due to publicity especially by the black community and its status was elevated to that of a National bank. The fact that VBS is also the only black owned bank in the country also added to the awareness. This elevation came with its own challenges as the bank now found itself inundated with calls for more business and loans and demands from general public for the bank to expand. The bank did its best to stick to its business model and turned away many businesses that it couldn’t handle. The bank also received a lot of interest from municipalities who wanted to bank and invest their excess cash with the bank. The bank made it clear it didn’t have capacity to handle municipal bank accounts and can only handle investments. All this shows prudency in the bank approach instead of the reckless image that has been created.
VBS always had one or two municipal accounts albeit at a smaller scale just like the other mutual banks. With increasing enquiry by municipalities, the bank investments from municipalities grew to more than a billion by 2017. The rapid growth of these investments became a concern to our competition and some employees of municipalities who were resistant to investing with VBS. By February 2017 it was brought to VBS management’s attention that actually MFMA which governs municipalities prohibits mutual banks from doing business with municipalities due to its definition of a bank. This definition is contrary to PFMA which is much clearer and covers mutual banks. This anomaly in the two sister legislation confused us with the fact that it means we are allowed to bank SOE’S, Provincial and National departments but not municipalities, we obviously thought to ourselves that something was not right. To be on the right side of the law however during March 2017 VBS decided to approach national treasury MFMA team. The enquiry from a staff employee at treasury was that we should not worry, the bank requested a written confirmation but this never came. The bank then decided to write to the accountant general at treasury and again no responses were received. The bank was then surprised around Sugust 2017 when one of our municipalities informed us that there is an email letter from national treasury informing them not to invest their funds with VBS (and this was mentioned specifically).We again tried to contact treasury but to no avail and that was when we contacted Reserve Bank to assist us so we can engage with treasury. SARB staff came back around September 2017 but their response was inconclusive. We then decided to take treasury to court via an interdict and that was the first time treasury responded via the office of the Director General. We were then asked to put the case on abeyance while we allow for a negotiated settlement.VBS obliged and the negotiations were direct between myself and the DG.
From day one the bank position was clear that we do not want to break the law and all we were asking treasury was to withdraw the letter sent to municipalities as this was causing a run on the bank. We asked if treasury could allow us to either wind down the municipal book quietly over a period of time or be granted a deviation to continue taking these deposits as the bank was about to apply for conversion to a bank which takes between 12 to 18 months. By January 2018 the liquidity situation at the bank due to municipalities withdrawing was becoming dire and I urged the DG so we can reach conclusion on the matter.
VBS executive team then met with treasury management during January and they conveyed the same message with treasury management. During this meeting, it however became apparent that the position of the DG to assist on the matter is not in line with his management team who seemed not interested in finding any solution but rather that VBS must just return all the investments to municipalities without being concerned about the consequences to the bank. They however promised that they will provide their decision in writing within seven days of the meeting. No written response ever came to the bank. Also throughout the 4 months of negotiation process treasury staff continued to instruct municipalities to withdraw and in many instances threatening them to do so.
Our concern about non-cooperation by treasury was communicated to SARB bank supervision team and the dangerous impact this will have on the bank and our clients. It is common knowledge that SARB would have intervened to convince treasury that implementation of any of the treasury decisions be done in a responsible manner but VBS was never afforded this opportunity nor given assistance.
By the end of February, the bank reserves were now at dangerously low levels and this forced the SARB to start intervening. Our last meeting between myself, yourself, PIC CEO, the DG and his DDG it was then quite clear that treasury is not going to enter into any arrangement of any form on the matter. This amounted to a waste of more than eight months. From day one then immediately realized that the fate of the bank was actually already decided from august and the negotiations we were dragged simply meant to drain the bank’s liquidity to a point where it had no choice but face curatorship.
Had the bank been aware of this scheme it had enough time and liquidity to look at alternatives like taking the matter of controlled wind-down to court and having enough time to engage its shareholders under normal circumstances. It is clear that one of our greatest sins was to give the former president a loan and running a successful black bank.
We are not politicians we were just doing our job and we did it very well. The former president is now a proud owner of a bonded rural home fully registered with the deeds office, something which many respected experts considered impossible. We wished to do more of these bonds across all rural villages in the country so that rural property can have equity just like the ones in proclaimed areas. To date none of my board and executive including myself have ever met the former president personally just like we have never met the thousands of home owners whose loans are with the bank.
No matter what happens to the bank and its direction going forward we will leave the space with our heads held high knowing that we achieved what was considered impossible. In the end, we were faced with a well-organized and powerful system which does not tolerate growing black banks and black excellence. The old African Bank was killed to prevent it from competing with the big guys in the dawn of new democracy. To me and many black Africans this democracy is just a dream which only exists on paper.