Deep in unbanked country, a sophisticated heist relies on political cover
The South African banking system is by its nature prone to crisis from time to time. It exists in an economy that has two strands to it. One strand is highly sophisticated, with financial systems on par with those in some of the world's leading financial centres. The second strand, the one where most South Africans live their lives, is one that better fits the classic definition of a developing economy. Here, banks lend to a sector of the economy that is dogged by desperately low wages and chronic unemployment.
Lending here comes with certain risks, but to bar the big four banks with their high borrowing costs from lending to this segment of the economy would be to leave people on this rung of society to the worst of the informal lending sector, a lawless world of loan sharks.
So we have to accept that banking collapses such as that of African Bank about four years ago are bound to happen, and that it's rather easy to stir up concerns around the health of relative newcomers to the banking scene such as Capitec, as its business model is heavily reliant on dishing out unsecured loans. The Reserve Bank, charged with regulating SA's banking system, has its hands full monitoring the unsecured lending market and putting out fires that are occasionally stoked by the market.
But then there is the peculiar case of VBS Mutual Bank, a small bank that hails from one of the most destitute regions in one of the country's poorest provinces, Limpopo. In terms of its effects on the stability of SA's financial sector, it is hardly a blip on the radar. It has 22,000 depositors, as against the millions of debtors exposed to the collapse of the old African Bank. VBS is a bank that shouldn't be playing in the big leagues at all, but rather providing the smaller loans needed by the community it services.
When it lent former president Jacob Zuma more than R7m to repay the state for renovations to his Nkandla homestead, the bank suddenly emerged onto the big stage. It was clear to all that there was something fishy about the operations of an institution that could afford to take such a big bet on a public servant who had long since passed retirement age.
What we discovered this week in the Reserve Bank-mandated report, "The Great Bank Heist", was that, over the past three years and under the cover of approval of audit firm KPMG, a rather "sophisticated" banking heist was taking place in Thohoyandou.
Governance in VBS all but collapsed, with the credit committee rendered useless. It's a common theme among institutions that have done business with the former president.
Political cover was ensured by issuing blank cheques to prominent people in SA's body politic, the details of which will emerge in weeks and months to come.
When the Reserve Bank first took action against VBS, the loudest protests were from people such as EFF leader Julius Malema, who called it an attack on a black bank.
By March 2014, VBS had a loan book of more than R210m, about 99% of those loans for mortgages. Fast-track to three years later, and that loan book had grown to more than R1bn, with home loans accounting for only 30% of the book. Suddenly, contract finance made up roughly 40% of the debtors book.
Contract finance? For what exactly? This week, we may have come close to an answer: the financing was meant to fund the gluttony of the bank's leading executives and for the men and women that they had to pay for their silence, among them a senior auditor and prominent political figures in the municipalities that were coerced to place huge deposits in the bank to keep it afloat.
Funding was in no way geared towards aiding black entrepreneurs in a province in dire need of economic stimulus. This was simply co-ordinated theft, with executives buying the political cover that is so readily available these days.