THE South African Reserve Bank (SARB) has insisted that the KwaZulu-Natal-based development bank, Ithala, is still not permitted to take deposits despite the recent court ruling that disallowed the administrator to stop state-owned bank from taking deposits.
This comes after the Pietermaritzburg High Court last week gave Ithala Bank a temporary reprieve by denying administrator Johan Kruger to extend his powers to stop the state-owned bank from taking deposits.
Kruger, who is one of the leading investigators into Ponzi and pyramid schemes, was appointed by the SARB’s Prudential Authority, which is responsible for regulating the banks in South Africa, in December last year.
This comes after the Prudential Authority refused to grant Ithala another exemption notice permitting it to conduct banking activities in the absence of a licence. The Prudential Authority also wanted Kruger to start a process to pay its depositors back their money.
Ithala has for more than a decade tried to obtain a permanent banking licence, and had to rely on exemption notices to conduct deposit-taking activities. Ithala has never been in possession of a banking licence because it is owned by the KZN provincial government.
This is because according to the Banks Act, licences can only be granted to entities under the ownership of a national government. It has been reported that Ithala also failed to address a number of weaknesses, including those related to governance and the filling of critical posts.
Kruger, Ithala’s repayment administrator, also wanted his powers to be extended so he is also allowed to recover and take possession of the bank’s assets and wanted the matter to be heard in camera.
However, the Pietermaritzburg High Court found that Kruger failed to disclose all relevant facts in his original application, as well as other information “one could reasonably expect” from an absent party (Ithala) to place before the court.
The court stated that the previous order had been obtained in Ithala’s absence and that there had been material non-disclosure.
This followed the December judgment that barred the bank from accepting deposits from clients in December after Kruger applied for an order to allow him to recover and take possession of Ithala’s assets.
The Pietermaritzburg High Court also ruled that Ithala should be given leave to deliver its supplementary affidavit, adding that the December ruling was reconsidered and discharged under Uniform Rule 6 (12)(c). The court added that the application by Kruger was struck off the roll.
Ithala said the dismissal of Kruger’s application validates the bank’s continued banking activities, including taking deposits.
However, SARB spokesperson Thoraya Pandy said it was important to note that this particular matter does not relate to the court ruling of December 2023 regarding Ithala’s status as a deposit-taking institution.
Pandy said the December court ruling stands, confirming that Ithala is not a deposit-taking institution and that continued deposit-taking by the bank is illegal.
“The court has ruled that Ithala SOC Limited (Ithala) should be given an opportunity to respond to the court application brought before it by the repayment administrator,” said Pandy.
She added the Prudential Authority also highlighted that Ithala had previously accepted deposit taking based on an exemption notice, which was published in the Government Gazette on July 22, 2022, and expired on December 15, 2023.
Pandy said in compliance with the Banks Act 94 of 1990, the Prudential Authority appointed the repayment administrator in this regard.
An Ithala spokesperson said despite the two recent court cases, the financial institution welcomed the clarification provided by Finance Minister Enoch Godongwana on the role of the repayment administrator.
The spokesperson said the Minister, in response to an internal question in Parliament on Wednesday, said the appointment of the administrator was only to ensure depositors were safeguarded while Ithala considers options to regularise itself.
“Ithala has steered a steady ship – for over 20 years since the corporatisation of Ithala, it has been able to meet depositors’ demands. And one of the key aspects is that Ithala has never ever dipped into the depositors’ funds to cover its losses,” said the spokesperson.
He said Ithala is under the Ithala Development Finance Corporation (IDFC), with assets of R4bn under management that remain profitable, and it does not have a liquidity problem.
“Ithala is working with the repayment administrator appointed by the Prudential Authority to produce a plan that will see a new Strategic Alliance Bank partner and sponsoring bank to safeguard deposits and participate in the national payment systems.”