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Sell African Bank to black investors to atone for Meeg’s demise

FIN24.COM / 26 JULY 2018 - 13:39 / ANDILE NTINGI

If you have been living under a rock for the past three months, you might have missed the implosion of VBS Mutual Bank (VBS), the deposit-taking lender that shot to fame in 2016 after granting former president Jacob Zuma a R7.8m loan to settle debt related to security upgrades on his Nkandla home.

The South African Reserve Bank has proven to be adept at saving banks through curatorship. But has the Reserve Bank helped or hindered competition in the sector? That’s another story.

African Bank. (Duncan Alfreds, Fin24)

On 11 March, the Reserve Bank placed VBS under curatorship after the Limpopo-based bank experienced a cash crunch. Details of what led to the liquidity crisis have shocked the nation, prompting the public to demand action against individuals responsible for the large-scale fraud that sparked the liquidity problem.

According to VBS’s curator, Anoosh Rooplal from SizweNtsalubaGobodo Advisory Services, as much as R1.5bn – equivalent to 75% of the bank’s capital base – has been looted from VBS by its directors, who reportedly used the funds to finance their lifestyles, purchase houses, buy high-end cars, and acquire shares in other companies. The decision to place VBS under curatorship is intended to rescue the bank and protect depositors from losing their savings.

The politics involving Zuma’s prosecution for corruption have spilled over into VBS’s curatorship.

Zuma’s political supporters, Black First Land First (BLF), argue that VBS is being targeted for extending a loan to Zuma, who supported his ex-wife Nkosazana Dlamini-Zuma in her presidential bid for the ruling ANC. We all know she lost the leadership battle to President Cyril Ramaphosa.

However, Ramaphosa has expressed his wish for VBS to be saved because it is a black-owned bank that offers services to the people of Limpopo. The Reserve Bank also appears to be determined to rescue VBS through the curatorship instead of liquidating it, which would have meant the end of the lender’s existence. The commitment to saving VBS and protecting its depositors was displayed when the Reserve Bank bolstered VBS’s capital base to the tune of R300m to allow more than 200 000 depositors to partially recover their monies trapped in the bank. Nedbank has been roped in to handle the process.

The Reserve Bank has a track record of helping out ailing lenders. In 2014, the Reserve Bank placed African Bank Investments Limited (Abil) under curatorship after the lender suffered a liquidity crisis due to poor lending practices that led to the bank’s loan book going bad. The Reserve Bank recapitalised Abil to the tune of R7bn, helping the bank to survive its liquidity crisis and to emerge out of the curatorship healthy.

All these recent bank rescues are efforts that need to be commended because they are helping to maintain a degree of competition in the banking sector – something that our country needs given the dominance in many of our industries by oligopolies and monopolies.

However, there seems to be inconsistency on the part of the Reserve Bank regarding which banks are saved and which ones are allowed to die.

VBS is being saved because it is one of the two black-owned banks in South Africa. Abil was rescued because it was too big to fail. There is currently a strong yearning from the black community for the emergence of more black-owned and controlled banks. There is nothing new about the chorus of establishment of black-owned banks to serve the needs of black consumers (that are not being met by established commercial banks).

Ten years ago, the Reserve Bank did not support the preservation of Meeg Bank (formerly Bank of Transkei) when it needed R53m to plug a hole in its capital reserves and hold on to its licence.

Instead, the central bank supported a takeover of Meeg by Absa despite fierce opposition to the transaction by black business lobby groups Nafcoc and the Black Management Forum, which backed an alternative takeover bid by Teba Bank (now Ubank) of Meeg. If the Meeg-Teba merger had received political backing, as VBS is now, a well-capitalised, black-owned bank capable of challenging dominant banks would have been created. Meeg was subsequently acquired by Absa and incorporated into the brand.

If any bank deserved to get government assistance, it was Meeg. Unlike VBS and Abil, Meeg’s management and directors did not steal depositors’ funds or engage in irresponsible lending practices. Meeg’s only sin was to have a shortfall in its capital reserves due to new banking regulations that required it to set aside more capital against non-performing loans. The Reserve Bank could have stepped in and provided the R53m capital shortfall or supported Teba’s acquisition of Meeg, a transaction that would have substantially recapitalised Meeg and spared taxpayers from bailing it out.

Even if VBS survives the curatorship, it will remain a tiny bank restricted to operating in Limpopo, with no chance of ever competing with established commercial banks like Absa, FNB, Nedbank, Standard Bank and Capitec.

If government is committed to supporting the establishment of a truly competitive black-owned bank, it needs to atone for how it treated Meeg. That atonement could come in the form of selling to black investors the 50% stake that the Reserve Bank currently holds in African Bank. African Bank could then increase its footprint through a merger with Ubank to create a sizeable black-owned and managed lender, in line with the current mantra of developing large-scale black industrialists.

Andile Ntingi is the chief executive and co-founder of GetBiz, an e-procurement and tender notification service.



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