A number of commentators have called for VBS Mutual Bank to be saved on the grounds of improving transformation in the financial services industry, seemingly at any cost.
“We call on all efforts to be focused on saving this bank of the black, poor and rural masses of our people. This must be done to ensure that the financial sector does not remain white-dominated and untransformed,” the EFF said in a statement last week.
Similar sentiments were shared by Yunus Carrim, parliament’s chair of the standing committee on finance and an ANC member, who described the collapse of VBS as a ‘‘major setback for diversity and transformation in the financial sector’’.
However, careful consideration shows that when weighed against competing alternatives, resuscitating VBS would be a poor way to advance transformation from the ashes of one of the country’s most brazen financial crimes.
To start calculating the cost of reviving VBS, one should start with the amount of money believed stolen, and which the bank’s curator is attempting to recover — a total of nearly R2bn. In addition, for the bank to resume commercial operations at roughly the same scale it was pre-curatorship, sources suggest an equity injection of between R200m and 300m is needed to meet capital requirements. A further amount of some R400m to R600m in working capital is required to get the bank into the business of lending again.
This brings the total bill nearer to R3bn, according to the upper end of estimates.
Chair of Intellidex and Business Day columnist Stuart Theobald says there are two reasons a bank should be saved. When it has been commercially successful but, due to external reasons, has seen the confidence of its depositors evaporate; and if the bank is systemically important.
“So, if it fails, will it cause other financial institutions to fail as well? In the case of VBS, it has clearly — as the victim of a fraud by its own executives — failed commercially. Secondly, is it systemically important? The answer is that if VBS failed, it would be irrelevant to the rest of the country’s financial system,” says Theobald.
A ‘black bank’
The reason offered by politicians for saving VBS is that it’s a ‘‘black bank’’.
“I’m not sure what that means,” says Theobald. “Whether it’s black because it was owned by black individuals, or whether it was serving black interests — like, for instance, providing services and products to the black rural poor. But the question to ask then is whether this would be the best use of scarce public resources, given all the options available. I would suggest that a Limpopo-based, rural former Bantustan building society that was privately owned and which has failed so badly is not the best use of capital to drive transformation, or the interests of black people.”
In relation to other options available to advance transformation, resuscitating VBS looks like a distinctly poor choice. Patrice Motsepe, through his investment holding company African Rainbow Capital Investments (ARC), is poised to make an entry into banking through the acquisition of the 90% of TymeDigital it does not already own.
TymeDigital is a platform developed by the Commonwealth Bank of Australia, which has already been granted a banking licence. Once regulatory requirements have been met, this will result in the first ‘‘black-owned and controlled commercial, retail and digital bank in SA’’, according to Motsepe.
The public can get exposure to TymeDigital through the JSE, on which ARC is listed. The bank might also be able to serve black interests much more effectively and broadly than VBS ever did. TymeDigital has developed technology and an offering that “will keep bank charges more affordable than SA banking clients pay in general”, the company has said.
This could be a formidable and highly competitive offering that will bring innovation and greater efficiency to banking in the country. It also won’t cost the state a cent. In fact, if TymeDigital and Motsepe live up to their billing, the state might enjoy an annuity stream from the contribution of ever larger amounts of taxes. And that is the beauty of well-run businesses.
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