The KwaZulu-Natal provincial government plans to ask the judge president in the province for an interdict blocking efforts by the South African Reserve Bank to have Ithala Bank liquidated.
Francois Rodgers, the DA MEC for finance, told Business Times this week the Bank had lodged an appeal against a high court ruling that it could not liquidate the bank and take control of its depositors book.
“We are approaching the judge president in the province for an interdict against the appeal,” Rodgers said. “We are in a situation where some depositors have hundreds of thousands that they cannot access due to the liquidation, which is wrong.”
The KwaZulu-Natal High Court ruled two weeks ago that the beleaguered bank could resume operations after the repayment administrator (RA) — appointed by the Bank’s Prudential Authority — sought an interdict halting all operations and freezing all funds in a battle over control of Ithala’s depositors book.
The Bank said the repayment administrator, Johan Kruger, had applied for leave to appeal the judgment as it prevents him from taking control of all of Ithala’s assets.
“The RA deems this necessary because Ithala did not separate its deposit-taking activities from its other businesses, such as its business as a credit provider advancing loans to the public,” the central bank said in a statement shortly after the court ruling.
The provincial government should guarantee the book while Ithala is allowed to finalise its application for a banking licence and continue operating legally
— Francois Rodgers, KZN finance MEC
As a result of the judgment, the board of Ithala retains control of its operations, meaning that Kruger is interdicted from interfering in the running of the provincial lender.
Kruger had argued that Ithala failed to meet crucial conditions for an exemption allowing it to operate as a bank without a licence, triggering the liquidation application affecting more than 200,000 clients, and throwing the bank into a crisis that has been likened to that of VBS Mutual Bank.
But Rogers said some depositors could not access funds due to the liquidation process.
He and the provincial government believed that a commercial bank should come in and take over the debtors book while Ithala sought a licence to continue operating, this time in full compliance with the law.
“The urgent application to the judge president should have been filed last week. We believe that the provincial government should guarantee the book while Ithala is allowed to finalise its application for a banking licence and continue operating legally.”
He said the liquidation process also put Ithala’s banking licence application on ice, which “muddied the situation”.
Liquidation was not called for because Ithala's assets exceed its liabilities, Rodgers said.
“It is a situation that we inherited where Ithala traded with an exemption and missed crucial deadlines. We believe that they must be a legally licensed bank. A commercial bank should come and take over the affairs to secure depositors’ funds.”
The Bank said in a statement in January that the provisional liquidation of Ithala was in the best interests of its 257,000 depositors. The insolvency legislation would allow an appointed liquidator to recover and distribute funds.
“The RA, appointed by the Bank, has established that Ithala is technically and legally insolvent, exposing depositors to potential loss of their deposits or parts thereof,” the Bank said at the time.
“Moreover, Ithala did not provide sufficient capital commitments or secure a legally binding renewal of the guarantee over its deposits from its shareholder, the provincial government of KwaZulu-Natal.”
The statement said liquidation would mean closing depositors’ accounts to avoid a run on the bank and allow for an orderly distribution of available funds while the court process unfolded.
“This is the necessary step to protect depositors. Depositors must note that the National Treasury has written to the PA, advising that the government will guarantee their funds. In the interim, depositors must urgently make alternative arrangements to address their banking needs.”
Although Ithala had never been registered as a bank, it was allowed to operate as one and accept deposits from the public through various exemptions issued by the registrar of banks and the minister of finance, the Bank said in January.
“All exemptions expressly required Ithala to separate its deposit-taking activities from its other businesses, such as its business as a credit provider advancing loans to the public, which Ithala did not do.”
The central bank said that contrary to what Rodgers believed, Ithala was indeed insolvent.
“The RA commissioned independent forensic accountants to assess Ithala’s solvency and liquidity. Their report found that Ithala is technically insolvent, meaning its liabilities exceed its assets. Specifically, Ithala’s liabilities amount to R2.79bn, while its total assets stand at R2.35bn, resulting in a shortfall of R441.63m.”
The Bank said separately that its lawyers were not aware of the interdict application by the province.
Efforts to contact Ithala Bank CEO Thulani Vilakazi for comment were unsuccessful.
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