Embattled KwaZulu-Natal-owned development agency Ithala has called for the government’s intervention, saying it faces closure, blaming its woes on an “arrogant and callous” repayment administrator (RA), appointed by the Prudential Authority (PA) to look after the affairs of the company.
On Thursday, the PA moved to have the company placed under provisional liquidation, saying that it was to safeguard the interests of about 257,000 depositors.
However, Ithala, in a scathing rebuttal, said the RA’s Johannes Kruger had harmed the businesses by stopping it from accepting deposits and processing withdrawals.
“Ithala has operated for 13 months after the RA was appointed. Due to the integrity of its deposit-taking activities, soundness of its business and the loyalty of its depositors, there was no panic withdrawal of deposits. Deposits have been secure throughout the 13 months of the RA’s tenure. He has not found any evidence of wrongdoing or irregularity on the part of Ithala in its deposit-taking activities,” it said.
“Kruger's directive to all Ithala service providers to halt operations directly undermines our customers’ access to their funds and the ability to conduct transactions. This irresponsible action comes at a critical time, as many citizens prepare for the new school term and face essential financial obligations such as school fees. Such moves contradict the commitment to protect customers’ interests, ensure the stability of the SA financial system and defy existing court rulings regarding Ithala's operations.”
Ithala’s ambition of being a fully fledged bank was dealt a blow after an RA was appointed to look after its affairs, in a move that essentially begins the process of winding down its deposit-taking activities.
The Reserve Bank appointed Kruger, one of SA’s leading investigators into Ponzi and pyramid schemes, as Ithala’s RA after a court order in December 2023. According to the Bank’s website, a repayment administrator is appointed to “manage and control the repayment of the money unlawfully obtained”.
While not a bank, Ithala takes deposits due to an exemption granted to it by the PA. Ithala has, until recently, been operating with a banking licence exemption notice, which is renewable every 12 to 24 months.
The last exemption lapsed in December 2023 after Ithala failed to meet some of the conditions laid out by the PA. The regulator declined to give the company a new exemption.
The PA has raised concern about Ithala’s high cost structure relative to its nature, size, complexity and risk profile.
Ithala said the PA’s application to liquidate it was flawed.
“Alarmingly, the PA has initiated liquidation proceedings against Ithala before any formal liquidation order has been issued by the courts. The grounds for this action are fundamentally flawed, frivolous and based on erroneous calculations.”
“Ithala is solvent with assets that far exceed its liabilities. Moreover, the auditor-general of SA has given Ithala a clean audit report for the year ended March 31 2024 and confirmed its going-concern status.”
The decision by the regulator to seek Ithala’s liquidation comes just months after the Financial Sector Conduct Authority suspended its licence after the company failed to meet financial soundness requirements, saying solvency was a critical element for the viability of any financial services provider.
In 2022, the PA gave Ithala a “final opportunity” to regularise its deposit-taking activities or such activities would be wound down.
The regulator then gave Ithala certain conditions for its exemption to be renewed, including a requirement that the provincial government or national government provide irrevocable and unconditional guarantees to fund all capital shortfalls to an amount of 15% of the risk-weighted assets held by Ithala, or R250m. This guarantee would be in favour of the Prudential Authority.
None of the conditions put on the table by the regulator were met. The regulator has also flagged Ithala’s lack of a modern banking system, saying that had resulted in the company struggling to comply with the principles of risk data aggregation and risk reporting.
The economic development and tourism portfolio committee in the KwaZulu-Natal legislature, called on the department and Ithala to oppose the liquidation application.
“This action is not only necessary but also urgent, as it ensures Ithala can continue its critical mandate of serving the people and businesses of KwaZulu-Natal,” the statement reads.
“We firmly believe that the PA has not fully considered the ongoing improvement plans and initiatives aimed at stabilising Ithala’s operations. These efforts demonstrate the institution’s commitment to addressing its challenges, and we support the legal challenge to prevent premature liquidation.”
According to a presentation by Ithala to parliament last year, nearly two-thirds of its loan book was home loans. It had about R2.9bn in deposits at the end of November 2023 with 37.1% of that made up of fixed deposits.
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