ITHALA Bank, a 60-year-old black-owned bank, is entangled in a legal battle as it fights to avoid liquidation, a fate deemed imminent by the Prudential Authority (PA) of the South African Reserve Bank (SARB).
The PA has cited various reasons to justify the stance it has taken, including Ithala incurring over R500million in losses and breaching the Banks Act and the Financial Advisory and Intermediary Act.
Ithala insists it is in good standing.
The Pietermaritzburg High Court is set to hear the matter today, where Ithala will argue for its survival.
The PA is a regulatory body responsible for overseeing the operations of financial institutions, including banks.
As Ithala pulled all the legal stops to evade the liquidation, questions are being raised about the root of the crisis that threatens to collapse the much needed bank serving predominantly impoverished people.
At the heart of this crisis not only lies the bank’s operational integrity but also its impact on approximately 257000 clients who rely on its services.
In 2001, Ithala became a wholly owned subsidiary of the Ithala Development Finance Corporation Limited (IDFC), yet it has wrestled for more than a decade to obtain a permanent banking licence, which has now hit crisis levels.
Despite its long-standing history, Ithala Bank has not been officially licensed as a bank and has been operating under a temporary exemption that expired in December 2023.
This prompted the PA to issue a series of warnings to the bank that if it did not comply, it would be liquidated.
The legal pressure intensified this month, on January 16, when the PA announced its intention to liquidate Ithala, citing alleged non-compliance and insolvency.
The bank is fighting the PA’s claims, claiming its solvency and labelling the actions of the appointed repayment administrator, Johan Kruger, as “arrogant and callous”.
The bank argues that Kruger’s directive to halt deposits and withdrawals undermines its customers’ access to their funds.
The National Treasury has, however, sought to calm Ithala depositors’ fears, by issuing a statement that assured them a government guarantee for retail deposits and a contingent on completing necessary procedures to manage the transfer of accounts to other institutions.
The Treasury emphasised the importance of protecting depositors’ interests and assured them that their funds were secure during these tumultuous times.
Moreover, KwaZulu-Natal’s MEC for Economic Development Reverend Musa Zondi, has called for calm, stating that this predicament was not about insolvency but also about establishing fair processes regarding Ithala’s licensing challenges.
He has been actively involved in advocacy at the highest levels of government to ensure a resolution that protects depositors while maintaining Ithala’s operational viability.
The build-up to this liquidation application was telling.
Last year, the Financial Sector Conduct Authority (FSCA) suspended Ithala’s licence as a financial services provider, effective from 26 July, pending compliance with the conditions necessary to lift the sanction.
According to the FSCA, this was triggered by the losses Ithala had allegedly incurred, reportedly amounting to R520m, that had further strained its position.
While Ithala denied claims that it was insolvent, bolstered by a clean audit report from the auditor-general for the financial year ended March 2024, the PA maintains that Ithala’s financial declarations were misleading.
The PA’s deputy governor, Nomfundo Tshazibana, highlighted that the bank’s alleged unlawful holdings of deposits amounting to R2.47 billion were contrary to the provisions of the Banks Act, which could lead to its operational demise.
Ithala, authorised as a Category I Financial Services Provider (FSP), had come under scrutiny during the FSCA’s supervision, which found that it failed to meet the financial standards required under the FAIS (Financial Advisory and Intermediary) Act.
One of the grounds which the FSCA relied on to suspend Ithala’s FSP licence were for the financial years ending on February 2020, 2021, 2022, and 2023.
Ithala demonstrated that its assets did not exceed its liabilities.
MEC Zondi rejected this claim, arguing that Ithala’s assets exceeded its liabilities.
The suspension remains in place until Ithala meets the conditions for it to be lifted.
On October 24, last year, the PA issued a directive instructing Ithala to stop accepting deposits and repay all existing deposits within 14 business days.
The directive warned that failure to comply could be considered an act of insolvency or an inability to pay debts, potentially triggering legal action for the winding-up of the entity or the sequestration of its insolvent estate.
On November 6, Ithala responded through its attorneys, Malatji and Co, stating that it was seeking legal advice. The deadline for compliance with the directive was November 14 last year.
This month, PA informed Ithala that it is forging ahead with its liquidation. Ithala challenged the entity and the legal battle will now culminate in a legal battle that will now play outin court.
Political parties such as the IFP, DA, uMkhonto weSizwe Party and lobby group Injeje YabeNguni have publicly thrown their weight behind Ithala.
DAILY NEWS