“To date we have not been able to establish the veracity of their assets — that is their loans — for us to determine whether that is adequate security to be able to put in money,” Naidoo said. He expressed the hope that within the next two to three weeks, the Reserve Bank would have found a mechanism to make these repayments to retail depositors.

No explicit guarantee had been provided for municipal deposits and Naidoo said it was “highly likely” that municipalities that deposited funds with VBS would lose a significant portion of that money. Talks were under way with the Treasury and the Department of Co-operative Governance and Traditional Affairs to deal with this but it was not within the powers of the Reserve Bank to refund the municipalities.

Even in the unlikely and highly optimistic scenario that it was possible to recover all the loans granted by VBS Mutual Bank to pay off all depositors, it would take between seven and 10 years to accomplish.

Naidoo said the curator — Anoosh Rooplal of Sizwe Ntsaluba Gobodo — would have to restate the financial statements of VBS at least for the last financial year. This would also determine the salvageability of the bank.

He said the information provided by VBS to the Reserve Bank and its financial statements were not a true reflection of its financial affairs. Fake deposits had been entered into the VBS system, which enabled the bank to make loans, in many cases to related parties. The cash from municipal deposits to some extent covered this up.

VBS reported to the Reserve Bank that it had a very high loan repayment rate, but that nine of its 20 large corporate loans were not performing with no payments received for a significant period of time.

Naidoo said a forensic investigation was launched in April to see if fraud had taken place, to determine the accuracy of the information supplied to the Reserve Bank, to see whether there were related party loans to directors, shareholders or executive management and if these loans were dealt with in terms of the regulations.

The forensic investigation would probably take two to three months to be concluded, Naidoo said.

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