Three banks, three sets of headlines, three lessons learnt?The rescued, the fanciful and the tragic – each with questions that have yet to be answered.

[Nat Quinn]

 

This past week in South Africa was the story of three banks that can be summarised as the revived, the mythical and the defunct – in the form of African Bank, the mooted Gauteng provincial bank, and VBS Mutual Bank.

There is clarity on the merits of diversifying and transforming the sector, but this clarity continues to be clouded by the blurring of the lines between the role players … and the involvement of the politicians.

African Bank, which ran into serious trouble a decade ago and had to be rescued by the South African Reserve Bank (Sarb) and the banking sector at large, was in the news when the Sarb announced that market conditions had resulted in an accounting impairment in the value of the bank.

The problem associated with the Sarb’s African Bank stake is that everyone agrees that the relationship between the two should be that of regulator and market player.

While the decision to introduce a unique solution in 2014 in order to maintain confidence in the system was commendable, the time to separate is now overdue and everyone across the table acknowledges that it can no longer be deferred.

Whether market conditions and buyer appetite exists is the question everyone hopes will be answered soon.

Whichever way it goes and however long it takes, African Bank’s revival has been an important aspect of the large mission of diversifying and transforming the financial services sector.

The mythical

On the mythical scale, new Gauteng MEC for Finance Lebogang Maile once again reiterated the province’s commitment to establishing a provincial bank to solve a range of issues that many banks are anecdotally incapable of addressing.

In the provincial government’s view, introducing a new player to the market to serve the province is necessary to address the bottlenecks in the current model.

What makes it all mythical is how the province imagines this will be capacitated.

The cost of establishing a bank and the resultant compliance regime is onerous and benefits from the custody of those with a long-term view rather than politicians who operate on a five-year horizon.

Nevertheless, the idea remains key to the recently-constituted provincial government – and citizens, regulators and political alliances and foes (it is rather fluid to know who stands where these days) will be watching these developments with a keen eye.

But the biggest of the three stories is the latest instalment in the tragic tale of a defunct bank.

The defunct

VBS Mutual Bank once stood as the reference point for how black rural communities could create a viable entity that originated from the times of acute discrimination.

It was in the news as the erstwhile chair of the now-defunct bank – Tshifhiwa Matodzi – finally revealed how the grand scheme that collapsed the bank was actually carried out.

In 2018, the Great Bank Heist report by Advocate Terry Motau revealed the story of how the bank was looted into obscurity by its various directors, auditors and outsiders.

The involvement of many political fixers in the looting created a scandal that uniquely involved politicians associated with political parties that, at every turn, professed a commitment to the black cause.

The irony of the complicity – whether direct or speculative – is that many citizens agree in principle that diversity in the banking system is a necessity and the survival of mutual banks, with their limited scope of activities but deep roots within communities, would go a long way towards meeting the transformation and diversity the political elites profess to stand for.

Core to the irony is that politicians who have been influential and powerful since 1994 have somehow found the mission to diversify and transform the financial services industry particularly elusive for a number of reasons.

To then see the one institution that had beaten the odds being collapsed into obscurity with the complicity of the politicians was a cruel irony.

As one could have predicted, the politicians simply denied it all and even when the links were obvious to see, the ability to concede that they were part of the problem continued to elude them.

A key part of the denial strategy hinged on the fact that Motau’s report had been prepared diligently but not necessarily with the assistance or concurrence of the complicit. This left it open to them to simply argue that the truth lay somewhere else and not in the pages of the Motau report.

To this end, the courts were expected to be the great bridge that tested the veracity of the Motau assessment and, by extension, the substance of the denials by those implicated.

Given the lethargic nature of the litigation processes in the country, the cast and crew of the collapse were eventually hauled before the courts for preliminary procedures – but all continued to live among us as they were released on bail.

The exception was the erstwhile chief financial officer, Philip Truter – whose guilt, together with the presence of mind to see that there was no defence worth putting up, forced him to concede and he was duly convicted and sentenced.

The curious nature of that development was that his position as CFO indicated that more than anyone else, he would have understood the nature of cash flows and laundering underpinning the scheme.

The idea that others felt they had a defence when Truter felt he didn’t is the type of arcane curiosity that courts are uniquely positioned to unscramble.

All of that changed last week when the chair himself decided to enter a plea agreement with the state where he conceded his complicity and centrality in the saga.

Matodzi also managed to extract what is a rather generous sentence of 15 years effectively behind bars as each of the 33 counts he admitted to will see their 15-year sentences being served concurrently.

The big takeaway from his affidavit was the insider perspective on how it all happened, which up to now had been missing in the analysis of the case study.

In outlining his own actions and his links with the many people who he says were knee-deep in it all, Matodzi has lent credence to much of what Motau had published and follow-up investigations had pieced together since 2018.

By revealing the names and the political parties and political players who were somewhere in the murky value chain, Matodzi has enabled citizens to once again reflect on the professed persuasions of particular politicians and the problematic practices they conduct in the shadows – and the gap is glaring.

Since the leaking of his affidavit, the ANC and the Economic Freedom Fighters have sought to explain their way through it all primarily through the traditional instinct of doubting the veracity of the utterances of a man seeking the best deal for himself.

As we have learnt over many years of political drama in the country, these issues are never as linear as we would like them to be.

It is clear that Matodzi has an interest in managing the plight of his own fate. It is also clear that his list of the affected and the implicated coincides with the list of the beneficiaries that Motau identified.

What lies in between the murky maze of details is the precise nature of the underlying transactions and the motivations behind them. The idea that Matodzi would randomly pick up innocent political parties knowing very well that his affidavit would be subjected to intense scrutiny and any discrepancies amplified, sounds as fanciful as the explanations behind the money flows mentioned in the reports and affidavits.

Over the next few weeks and months those implicated will eventually make their way through the courts and explain their part in the saga.

What will not happen over the next few weeks and months is the revival of an institution that for over 35 years managed to beat the odds and survive in an industry where significant barriers to access and success still exist.

What will not happen over the next few weeks and months is the revival of an institution that addressed so many of the unique financial access dimensions for black and rural communities over many years.

The fact that politicians – who keep stating their commitment to economic transformation and breaking the bottlenecks inherent in key industries – are now known to be at the vortex of its destruction is the sociopolitical tragedy of our time.

 

SOURCE:Three banks, three sets of headlines, three lessons learnt? – Moneyweb

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