October 30, 2018 / 11:48 AM / 9 months ago

UPDATE 1-South Africa's central bank starts winding up graft-hit VBS bank

(Adds detail, context)

JOHANNESBURG, Oct 30 (Reuters) - South Africa’s central bank said on Tuesday that it had started the process of winding up small lender VBS Mutual Bank, which was caught up in a corruption scandal earlier this year.

A report commissioned by the central bank titled “The Great Bank Heist” and published this month found that at least 1.9 billion rand ($130 million) had been looted from VBS by more than 50 individuals and entities.

In March, VBS was placed under administration by the central bank because of liquidity issues.

On Tuesday, the South African Reserve Bank (SARB) said VBS was “hopelessly insolvent” and that the regulator had applied to the High Court to close down the bank.

The VBS saga has prompted a public outcry in South Africa because many municipalities had deposits with the bank and because politicians are alleged to have benefited from the fraud.

The report commissioned by the SARB said VBS actively sought to attract deposits from municipalities and other state entities and that bribes were paid to solicit the money.

It also recommended that the government seek damages from KPMG, which audited VBS’ financial results. KPMG said earlier this month that it would study the contents of the report before commenting but is yet to issue a statement.

The bank was thrust into the spotlight in 2016 when it provided a 7.8 million rand loan to former president Jacob Zuma to reimburse the state for upgrades to his private residence, after an outcry over lavish improvements including a swimming pool and amphitheatre.

In a ruling that hit Zuma financially and politically, the Constitutional Court ordered him to return some of the $16 million spent on enhancing the residence. ($1 = 14.6588 rand) (Reporting by Alexander Winning Editing by James Macharia)

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