12/04/2018 08:07 SAST | Updated 12/04/2018 08:07 SAST

'Severe Mismanagement', 'Fraudulent Reporting' And 'Fraudulent Transactions' At VBS Bank

VBS Bank has been flagged for possible fraud in an affidavit before the courts.

Kuben Naidoo, deputy governor of the South African Reserve Bank.
Kevin Sutherland/ Bloomberg via Getty Images
Kuben Naidoo, deputy governor of the South African Reserve Bank.

There are indications that VBS Mutual Bank was "severely mismanaged", with possible fraudulent reporting taking place, Business Day reported. This is according to Registrar of Banks Kuben Naidoo, who reportedly said in an affidavit that there was also evidence that money had been extracted from the bank to advance the personal interests of certain individuals and companies.

Naidoo reportedly said this in an affidavit opposing the application by VBS parent company Vele Investments to set aside the Reserve Banks's decision to place VBS under curatorship.

The bank was placed under curatorship in March because of a "severe" liquidity crisis".

In his affidavit, Naidoo reportedly referred to a report by the curator, Size Ntshaluba Gobodo Advisory Services, which suggested that large balances valued at around R1.8-billion "may be a fictitious creation of deposits on the banking system".

Among other irregularities uncovered was the payment of brokerage commissions to attract deposits, mostly from municipalities, which Naidoo reportedly said was "highly unusual".

The curators had also reportedly been unable to confirm a large portion of the bank's corporate deposits and the integrity of the financial information of the bank was "highly compromised".

There were "significant deficiencies" in the management and administration of the bank, Naidoo reportedly said.

According to IOL, Vele said that the curatorship was reviewable under the Promotion of Administrative Justice Act because the notification it received was from the registrar of banks, not from the minister of finance.

"The notification required in section 69 (1) has therefore been exercised by a party not authorised by the empowering statute to give notice to the affected bank," Vele said. It consequently lacks legality and rationality," Vele reportedly said.

VBS was accused of failing to follow up on large clients who owed the bank money, IOL reported.

"[Curator Anoosh] Rooplal is further of the view, based on his initial assessment, that there may have been fraudulent reporting and fraudulent transactions conducted in order to further the interests of certain key individuals and companies related to the bank," Naidoo said.

The curators were unable to confirm R900-million worth of corporate deposits, out of a total of R2.9-billion in deposits, Business Day reported on Monday. Analyst and chair of Intellidex, Stuart Theobald, wrote: "It looks as though the bank has been subject to major fraud."