A strong call was made by members of most political parties represented in the National Council of Provinces for KwaZulu-Natal-based Ithala Bank to be saved.
The call was made in a debate initiated by IFP MP and NCOP deputy chair Poobalan Govender “on ensuring the continued existence of Ithala Bank as an instrument for equal access to finance, development and opportunity”.
The Prudential Authority of the SA Reserve Bank has applied in the Pietermaritzburg high court for Ithala’s provisional liquidation on the grounds that it is technically and legally insolvent. It said this is necessary to protect the bank’s about 257,000 depositors. Judgment in the case, which Ithala is opposing, has been reserved.
The National Treasury has undertaken to guarantee the deposits of retail depositors. The KwaZulu-Natal government has applied to the Treasury for R2.4bn to guarantee Ithala depositors’ funds.
MPs were adamant in the debate that instead of closing down the bank it should be supported and guided by the authorities to address its governance and regulatory challenges. Among the proposals were that the Prudential Authority, National Treasury and the KwaZulu-Natal provincial treasury had to come up with a turnaround plan and a team of experts appointed to manage the bank. Regulatory and legislative amendments were also needed to address Ithala’s unlawful status.
Other suggestions were for the Treasury to recapitalise the bank, for it to enter into a partnership with a major commercial bank or for it to be allowed to continue to operate under an exemption notice as it had done for many years.
Emphasis was placed on the important role the bank has played in economic empowerment, job creation and financial inclusion, especially in rural areas, its support for small businesses and its role as an instrument of transformation. It is also used as a vehicle for the distribution of social grants and pensions.
Govender said the bank was a lifeline for thousands of particularly vulnerable people and should not be allowed to close down. This view was supported by ANC, MK, EFF, UDM and Patriotic Alliance MPs.
EFF MP Khanya Ceza said Ithala should be transformed into a fully fledged state-owned bank.
However, DA MP Paul Swart said while he supported the mission of Ithala, he could not support a badly managed bank and the gross negligence which placed public funds at risk. It could still serve its purpose, he said, if it complied with the Prudential Authority’s requirements. FF+ MP Hendrik van der Berg was emphatic that Ithala should comply with the authority’s requirements or close down.
According to the Prudential Authority the 67-year-old Ithala Bank has had a cumulative loss of R520m from March 2008 to March 2024 and apart from 2014/15 and 2015/16 has had a loss every year since 2009/10.
Ithala has applied to court to be allowed to continue operating pending the outcome of the provisional liquidation application. It has accused the Prudential Authority of being intent on destroying it. The bank has also filed an urgent interdict to overturn directives halting deposits and withdrawals.
The Prudential Authority appointed a repayment administrator in December 2023 to take control of the deposits. The powers of the administrator have also become the subject of litigation by Ithala.
KwaZulu-Natal MEC for economic development, tourism & environmental affairs Keith Zondi said the restrictive role of the repayment administrator had suffocated Ithala’s business activities.
Ithala operated as a bank under an exemption notice issued by the Prudential Authority that lapsed in December 2023 and it failed to obtain authorisation to establish a bank as it did not comply with the authority’s supervisory concerns and the requirement for it to restructure to comply with the Banks Act or the Mutual Banks Act.
The Banks Act does not allow provincially owned state entities to be registered as banks.
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