With VBS Mutual Bank being put under curatorship, it marks the 13th bank in almost 30 years to go through the process in South Africa – and the first since African Bank’s collapse in 2014.
The South African Reserve Bank announced this past weekend that due to severe liquidity issues, VBS Mutual Bank would be placed under curatorship.
Curatorship is a mechanism in the South African Bank Act which allows the government to take over administrative control of a failing financial institution to try and reverse its fortunes and bring it back to a functioning business.
In VBS’s case, the fault came through failure by the bank’s management to align the business with its sudden rate of growth. The SARB said the bank made incredibly risky moves, particularly around using short-term municipal deposits as a base for long-term lending.
When the municipalities came to withdraw their funds, the bank did not have the funds to pay them.
This case of “bad management and liquidity problems” is a recurring theme among South Africa’s failed banks. A recent paper published by the University of Pretoria outlined all the cases of failed banks in the country since 1990 – showing 12 (13 including VBS) banks that were placed under curatorship, three of which would ultimately be liquidated.
The table below outlines all the banks that have gone into liquidation over the past 30 years.
|Bank||Year of curatorship||Reasons|
|Cape Investment Bank||1991||Fraud|
|Pretoria Bank||1991||Bad management and a dubious merger with Masterbond|
|Sechold Bank||1994||Liquidity problems due to a loss of depositor and investor confidence|
|Prima Bank||1994||Liquidity problems due to non-performing loans|
|African Bank||1995||Bad management and liquidity problems|
|Community Mutual Bank||1996||Liquidity problems due to a very high expense to income ratio|
|Islamic Bank||1997||Bad management and improper accounting, particularly around unsecured lending. Liquidated|
|FBC Fidelity Bank||1999||Bad management and liquidity problems|
|Regal Treasury Bank||2002||Auditors rescinded their approval of the bank’s controlling company’s financial statements, which caused a run-on. Liquidated|
|New Republic Bank||2002||Bad management and liquidity problems|
|Saambou Bank||2002||Bad management and liquidity problems|
|African Bank||2014||Bad management and liquidity problems, particularly around unsecured lending|
|VBS Mutual Bank||2018||Bad management and liquidity problems|
According to the research paper, even though the majority of the banks ultimately resolved their liquidity problems, the way in which this was done – arrangements, transferring assets, mergers etc – often resulted in the banks ‘shutting down’ in one way or another.
As a result of various deals, sell-off and mergers, over 20 banks have been deregistered in South Africa since 1990. These are:
- Brait Merchant Bank
- Cadiz Investment Bank
- CorpCapital Bank
- FirstCorp Merchant Bank
- International Bank of Southern Africa
- Merril Lynch Capital Markets Bank
- Old Mutual Bank
- PSG Investment Bank
- TA Bank of Southern Africa
- African Merchant Bank
- BOE Bank
- Cape of Good Hope Bank
- ING Bank NV SA
- Nedcor Investment Bank
- RMB Asset Finance Bank
- Securities Investment Bank
- Gensec Bank
- MLS Bank
- New Republic Bank
- Saambou Bank
- Peoples Bank
- MEEF Bank
- Imperial Bank