President Cyril Ramaphosa has been briefed on the challenges facing KwaZulu-Natal state-owned financial institution Ithala whose exemption to conduct banking activities has lapsed, bringing its long-term future into serious doubt.
Presidency spokesperson Vincent Magwenya told Business Day that finance minister Enoch Godongwana, KwaZulu-Natal premier Nomusa Dube-Ncube and finance MEC Peggy Nkonyeni took the president into their confidence about the banking shortcomings of Ithala.
This was done in a meeting on the sidelines of the cabinet lekgotla held last week in Johannesburg.
The KwaZulu-Natal premier and the finance minister recently briefed the president on the issues affecting Ithala Bank, Magwenya said. “The president encouraged the province to work with the executive management of the bank and the Prudential Authority [PA] in ensuring the sustainability of the bank.”
The briefing followed a report by Business Day that a repayment administrator was appointed to look after Ithala’s deposit-acting activities, in a move that essentially begins the process of winding down its deposit-taking activities.
The Reserve Bank appointed Johan Kruger, one of SA’s leading investigators into Ponzi and pyramid schemes, as Ithala’s repayment administrator after a court order in December.
According to the Bank’s website, a repayment administrator is appointed to “manage and control the repayment of the money unlawfully obtained”.
With a footprint of about 38 branches in KwaZulu-Natal, many of them in far-flung places, Ithala has over the years been a bank of choice for rural people and small businesses in the province.
It had more than R2.5bn in customer deposits up to November last year and provided finance of about R2.2bn to people in rural areas and townships to buy homes, cars and other items.
While not a bank, Ithala takes deposits. It does so on application for and the granting of an exemption by the PA, which is required to be renewed every 12 to 24 months.
The most recent exemption, granted in June 2022, lapsed at the end of 2023. The PA has not renewed the exemption.
“As an executive authority responsible for an oversight role over Ithala, I am satisfied with the progress being made to ensure compliance with the Banks Act. Right from the board of Ithala to the CEO, management and all categories of staff, we continue to work with the Prudential Authority and the repayment administrator to ensure the full functioning of this critical institution in our province during this period of transition,” economic development MEC Siboniso Duma said.
“Ithala, working with the Prudential Authority and repayment administrator, is devising an alternative plan of action that is in the interest of depositors in relation to deposits that it holds ... Ithala remains one of KwaZulu-Natal’s unique facilities that have been critical in the transformation of the province’s economy. We have sought to use Ithala to address issues of wealth distribution and the creation of wealth at the bottom of the pyramid.”
Ithala’s numerous run-ins with the PA came to a head last year when the company and the provincial government dragged the PA to court in an attempt to set aside the conditions attached to Ithala’s exemption.
The provincial government argued before the high court in Pretoria that the conditions were irrational, calling the guarantee condition “extraordinary”.
Capital shortfalls
The condition they took particular umbrage with was the requirement by the PA 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 PA.
The court ruled in favour of the PA and in November dismissed the provincial government’s leave to appeal.
Ithala is also scrambling to secure a sponsorship agreement with a bank authorised to clear and settle payments in the national payment system (NPS) after its long-term banker, Absa, informed it of its intention to terminate their agreement.
According to the country’s banking laws, non-clearing financial services companies such as Ithala participate in the NPS indirectly through sponsorship agreements with other clearing banks. Without a sponsor it is practically impossible to do business and transact in SA.
Duma said processes were under way to secure another sponsor for Ithala.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.