VBS makes the headlines after Zuma loan

Date: 16 September 2016 By: Anton van Zyl

The old adage that “there is no such thing as bad publicity” may be very true for a Vhembe-based bank, VBS Mutual Bank. The bank made the national headlines the past week after it was officially announced that the bank had lent R7,81 million to president Jacob Zuma to help him pay back money owed for non-security upgrades at his Nkandla home.

VBS Mutual Bank is fairly well known in Limpopo, with branches in Thohoyandou, Sibasa, Louis Trichardt and Johannesburg. It was established in 1982 and initially operated as the Venda Building Society, specialising in granting small home loans to people living on land owned by traditional authorities.

When it was announced this week that the bank will lend money to president Zuma, the news was met with mixed reactions. Political parties such as the EFF asked that the bank as well as the transaction be scrutinized, whereas the ANC Youth League welcomed the bank’s decision and encouraged young professionals “in their millions” to open accounts with the bank.

“As the ANCYL, we want to pay tribute to this financial institution for its role in supporting marginalised communities. Despite prevalent discriminatory practices in the banking sector with few banks having the monopoly, VBS Mutual Bank has stood the test of time,” the league says in a press release.

Numerous questions were, however, raised about the bank’s ownership structure and the shift in the bank’s business strategy the past few years. VBS Mutual Bank’s two biggest shareholders are the Public Investment Corporation (PIC) and Dyambeu Investments. Each owns just over 25% of the shares. The PIC manages the pension money of government employees, whereas Dyambeu Investments is a Vhembe-based company led by Vhavenda king Toni Mphephu Ramabulana.

One of the question marks hangs over the relationship between Toni Mphephu Ramabulana and president Zuma. President Zuma was supposed to be the guest of honour during the king's coronation ceremony scheduled for 9 September. This ceremony had to be cancelled at the last minute, following an urgent court interdict obtained by Masindi Clementine Mphephu and Charles Mbulaheni Mphephu, two contenders for the throne.

VBS Mutual Bank, however, declined to give any details on the Zuma transaction, citing client confidentiality clauses. In an interview on the radio show, Power FM, earlier this week, the bank’s CEO Andile Ramavhunga said that he could say “pretty much nothing” on the issue.

VBS Mutual Bank embarked on a turn-around strategy in 2013, changing its marketing and business strategies. “Previously the bank operated on an outdated building society model. During the current financial year (2015) the bank introduced new lending products which are aimed at small and medium enterprises (SMEs),” said Ramavhunga in his report in the 2015 financials. It became clear that the bank’s vision was to offer solutions to a multitude of small entrepreneurs vying to supply government institutions or municipalities with goods or services.

In the 2015 report, Ramavhunga talks about the three main products that the bank will be focusing on, namely fuel guarantees, bridging finance/contract finance and invoice discounting. He also explained the new funding model of the bank. “Due to the limited savings that are available from the general public, the bank changed its strategy of sourcing deposits and funding. A focus was placed on sourcing funding from institutions and municipalities.”

It also became clear from this report that the bank will rely on the contacts and goodwill of its shareholders. Ramavhunga referred to the PIC’s injection and the role that Toni Mphephu started playing: “During the current financial year, we concluded a revolving facility of R350 million from PIC (major shareholder). This facility is aimed at financing fuel and energy related transactions. Cash holdings increased by 54% in the current financial year, mainly due to marketing collaborations and interventions of His Majesty the King through Dyambeu investments.”

The turn-around strategy clearly worked and the niche market that the bank was targeting, was susceptive. In the 2016 financial year, the bank recorded a R4,9 million profit. “Total assets of the bank have increased to R1 billion (156%) when compared to the prior year. Since the turnaround strategy started the assets have increased by 209%,” Ramavhunga states in his report. He mentions that R280 million was raised from municipalities and institutions and the bank drew just under R300 million from its PIC facility. “Lending to corporates (SMEs) currently comprises 53% of the total lending book which is a shift from a 100% retail lending book of 2013,” he said.

The revenue model of the bank clearly shifted from being primarily interest driven, to other sources such as fees charged for contract financing business. The bank’s chief financial officer, Mr PN Truter, referred to this in his report. “Due to the renewed focus that has been placed on correcting the revenue mix between interest and non-interest income, the non-interest revenue has increased significantly with 167% or R15 million.”

The one question that many people asked the past week, was how the bank is managing its risk profile. According to a press release issued by the Presidency, the 74-year-old president Zuma obtained the loan on standard terms. Should this loan be repayable over 20 years at a prime lending rate, it will cost him R78 000 per month to repay the loan.

VBS Mutual seems to have a very tight hold over its creditors. In the 2016 report, the bank’s CEO, Mr Ramavhunga, had this assurance for shareholders: “As a bank we believe in responsible and sustainable lending. During the year under review the management team went on a robust exercise of refining and improving the banks policies and procedures. This culminated in the introduction of a new and robust credit policy that takes into account the South African market conditions as well as occurrence that happen globally.”

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Anton van Zyl

Anton van Zyl has been with the Zoutpansberger and Limpopo Mirror since 1990. He graduated from the Rand Afrikaans University (now University of Johannesburg) and obtained a BA Communications degree. He is a founder member of the Association of Independent Publishers.

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VBS Mutual Bank's CEO, Andile Ramavhunga.