Ithala SOC has R300 million ring-fenced in the provincial revenue fund that can be used by the bank to secure deposits — as required by the South African Reserve Bank’s Prudential Authority — the KwaZulu-Natal treasury has said in court papers
Ithala SOC has R300 million ring-fenced in the provincial revenue fund that can be used by the bank to secure deposits — as required by the South African Reserve Bank’s Prudential Authority — the KwaZulu-Natal treasury has said in court papers.
The money is not reflected in Ithala’s balance sheet because it hasn’t been advanced to the bank, according to a supporting affidavit deposed by the KwaZulu-Natal treasury head of department, Carol Lyn Coetzee.
The affidavit was filed last week.
“This is additional capital available to Ithala that can be drawn for purposes of security deposits held by Ithala as was required by the Prudential Authority in the final authority,” Coetzee said.
The bank was supposed to be in the Pietermaritzburg high court on Tuesday to challenge what it says are unfair legal instructions from Johannes Kruger, the Repayment Administrator of the PA.
The legal instructions have frozen all activity on Ithala’s accounts, making it impossible for the bank to operate. Staff have not been paid their January salaries.
In a statement announcing the postponement of Tuesday’s hearing on Monday afternoon, KZN finance MEC Francois Rodgers said: “This matter requires urgent attention as it concerns the livelihoods of thousands of people in KwaZulu-Natal.
“Sassa beneficiaries who depend on Ithala are in limbo. At least 10 000 government employees (who bank with Ithala and could not draw their paid salaries) did not receive their salaries in January after Mr. Johannes Kruger, who is the RA, instructed Ithala to stop all transactions.
“Ithala’s own employees did not receive their January salaries and if there’s no urgent intervention, they will also not receive their February salaries in time. The judiciary must be sensitive to these realities,” said Rodgers.
The bank is set to be in the same court on Thursday to oppose an application by the Prudential Authority for provisional liquidation of the entity. Ithala will be supported by the provincial treasury and KwaZulu-Natal’s department of economic development in this matter.
Should the Prudential Authority be granted the provisional liquidation, it will result in the closure of 257 000 depositors’ accounts as the matter plays out. Should the bank close, 400 jobs could be lost.
Ithala is looking for a transferee bank, on whose licence it can piggy-back, to continue operations.
The bank has been a lifeline for KwaZulu-Natal’s rural economy for more than three decades.
Falling under the province’s economic development department, it has played a pivotal role in providing development finance to small and medium enterprises, as well as essential banking and insurance services to those in the rural areas.
Its collapse would deliver a devastating blow to its clients in the province’s rural heartlands and urban centres.
The loss would also severely undermine KwaZulu-Natal’s developmental agenda, which depends on institutions like Ithala to drive inclusive economic growth.
The Prudential Authority has said liquidation is in the best interests of depositors, given that according to repayment administrator Kruger, Ithala is technically and legally insolvent.
The authority’s stance follows the expiration of Ithala’s exemption from the Banks Act in December 2023, which allowed it to operate without a banking licence.
Kruger has been accused of attempting to take sweeping control of Ithala’s operations, drawing sharp criticism from KwaZulu-Natal provincial officials.
In November last year, Ithala won a court case against him, with costs, to return control of Ithala’s non-banking assets and operations, saying he had overstepped his mandate and had usurped the authority of the SOC’s board and management. It is this ruling that Ithala was to ask the court to enforce on Tuesday.
Kruger, a partner at Bowman Gilfillan Attorneys, has also faced allegations of conflict of interest. According to the affidavit, he continues to use his law firm in litigation against Ithala, raising questions about his impartiality.
“The repayment administrator … has issued a directive that Ithala must repay all deposits held by it in the amount R2.47 billion into his firm’s trust account,” the affidavit reads.
Kruger’s approach has been criticised as disproportionately punitive, with provincial officials accusing him of treating Ithala “as though it was never authorised to take deposits”.
Contrary to Kruger’s stance of the bank being technically and legally insolvent, Coetzee said in the affidavit that the bank “does not have a solvency and liquidity problem”.
She said that as of 31 October 2024, Ithala’s total assets amounted to R3.25 billion, while its total liabilities were R2.93 billion.
“Ithala’s assets exceed its liabilities by R316 million,” said Coetzee.
“Regarding the SOC’s liquidity position, it has Cash (physical currency or funds readily available) and Bank (balances in the institution’s bank accounts that can be withdrawn if necessary) of approximately R250 million, and liquid assets in the form of treasury bills and other investments of approximately R400 million.
“The majority of Ithala’s assets are held in loans advanced to clients (ie R2 billion of the R3.2 billion total assets). Ithala’s loan book is 99% secured by an underlying asset that is financed (eg home finance).
“As the majority of Ithala’s assets are locked in the loan book, Ithala is not in a position to pay back all customer deposits held immediately.”
The customer deposit balance is R2.4 billion, said Coetzee, adding that it was commonplace for banks to have an asset/liability mismatch.
“Ithala far exceeds the liquidity requirements as set out in the Banks Act and the additional requirements imposed on Ithala by the Prudential Authority,” she said.
Coetzee said the provincial treasury did not have any “substantive documentary evidence to demonstrate that there are any concerns in respect to the governance and operations of Ithala from the appointed Repayment Administrator”.
The Prudential Authority and Kruger had “not necessarily acted in the best interests of Ithala’s clients as the decisions taken and directives issued have resulted in Ithala’s clients’ funds being put at risk”, she said.
“The inability of Ithala’s clients to access their accounts or banking services is detrimental not only to the clients, which include Sassa grant beneficiaries, but their dependents, and Ithala’s employees and service providers as they no longer have access to any funding.”
She said Kruger’s refusal to pay the salaries of Ithala employees would also have equally detrimental consequences.
“I submit that it is important that Ithala be kept intact to enable the transfer of deposits as foreshadowed by the provincial government, including provincial treasury, and the national government to be given effect to.”
